Pound Australian Dollar Exchange Rate News: GBP/AUD Sinks as US Debt Ceiling Deal Nears

Pound Australian Dollar Exchange Rate Slips on Risk-On Mood

The Pound Australian Dollar (GBP/AUD) exchange rate is slumping as optimism over US debt ceiling talks buoyed risk appetite.

At time of writing the GBP/AUD exchange rate is trading around $1.8666, a 0.40% fall from this morning’s opening levels.

Pound (GBP) Under Pressure from Mixed Signals from BoE

The Pound (GBP) is experiencing mixed success against its peers this morning amid a lack of economic data. Yesterday, Bank of England (BoE) Governor Andrew Bailey reiterated that inflation is starting to fall but remains cautious on second-round effects from wage and price pressures.

Testifying before the Treasury Select Committee in Parliament, Bailey fielded questions from MPs over monetary policy. Despite giving reassurances that headline CPI will start to fall from April, the inflation outlook remains uncertain. Without clear indication on how the central bank will continue their fight against inflation, GBP investors were deterred.

Bailey also spoke of falling energy prices potentially dragging inflation down with it. However, with potential second-round effects from accelerating wages and prices, further rate hikes could still be on the table. With the market expecting interest rates are nearing a peak, the BoE has left the door open to further tightening, keeping Sterling modestly supported.

Australian Dollar (AUD) Undermined by Rising US-Sino Tensions

Meanwhile, the Australian Dollar (AUD) is buoyed by a resurgence of risk appetite on the back of positive talks between President Joe Biden and House of Representatives Speaker Kevin McCarthy. Ongoing negotiations of the US debt ceiling appear to be nearing an end. The avoidance of the US defaulting on their debt has seen market sentiment lifted.

However, rising geopolitical tensions between the US and China could be capping gains. Taiwan and the US have reached an agreement on the first part of their trade deal, covering customs and border procedures, and small business. Ahead of the Chinese commerce official visit to the US next week, tensions are rising.

US Trade Representative Katherine Tai, was confident that the deal strengthens US-Taiwan relations, saying:

‘We look forward to continuing these negotiations and finalizing a robust and high-standard trade agreement that tackles 21st Century economic challenges.’

Pound Australian Dollar Forecast: Drastic Fall in UK Inflation to Dent Sterling?

Looking ahead to next week, the Pound Australian Dollar exchange rate could see movement with the latest inflation data for the UK. An expected cooling to 8.5%, the lowest since April 2021, could radically pare rate hike bets.

Elsewhere, the Australian Dollar could fluctuate with the release of mixed PMI data. The manufacturing sector is expected to slip, but a continued resurgence in services could offset the fall.

Danny Tingle

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