The Pound Australian Dollar (GBP/AUD) exchange rate weakened through the week as the Reserve Bank of Australia (RBA) delivered a surprise interest rate hike.
What’s Been Happening: GBP/AUD Exchange Rate Muted amid Hawkish RBA
The Australian Dollar (AUD) opened last week on strong footing as the RBA surprised markets by raising interest rates. Against predictions of a pause, the central bank appeared hawkish in their accompanying statement and kept the door open to further tightening.
However, Inflation in China missed forecasts, prompting fears over the world’s second largest economy. Concerns over China’s post-Covid recovery weighed on market sentiment and dented the Australian Dollar.
In contrast the Pound (GBP) started the week on the back foot amid a slowdown in services PMI. Despite marking the fourth consecutive month of expanding activity, a slowdown of growth concerned investors.
Disappointing retail sales also weighed on Sterling as the latest retail sales monitor revealed sales slowed from a 5.2% YoY growth in April to 3.7%. Surging food prices saw consumers rein in spending despite the three public holidays in May.
A lack of data for the rest of the week saw the Pound kept afloat on elevated Bank of England (BoE) interest rate hike bets. Expectations the central bank will continue tightening beyond June buoyed GBP investor sentiment.
Three Things to Watch Out for This Week
- UK GDP Growth
An expected return to growth could boost GBP investors if forecasts prove accurate. After a 0.3% contraction in March, the UK economy is expected to expand 0.2% in April.
- UK Labour Market Data
UK unemployment is predicted to climb to 4%, but wage growth is also expected to accelerate. Will the latter help to bolster the Pound?
- Australian Labour Market Data
Unemployment is expected to remain unchanged at 3.7%, which could buoy the Australian Dollar on a resilient labour market.
Pound Australian Dollar Forecast
Elsewhere, risk sentiment could also play a major role in impacting the currency pairing. The latest interest rate decision from the Federal Reserve could impact global market moods if the US central bank opts for a pause.