GBP/AUD Exchange Rate Slips as Risk Appetite Improves
(Updated 14:15 13/6/2022) The Pound Australian Dollar (GBP/AUD) exchange rate is facing some modest pressure this afternoon as notable risk appetite favours the ‘Aussie’.
This uptick in risk sentiment comes amid a sharp drop in the US Dollar (USD) in the wake of this afternoon’s US inflation release.
Headline inflation fell from 4.9% year-over-year to 4% in May, while core inflation fell from 5.5% year-over-year to 5.3%.
(Both were mostly in line with expectations: 4.1% headline expected, 5.2% core expected.) pic.twitter.com/pZ9VvVvRqh
— Steven Rattner (@SteveRattner) June 13, 2023
A larger-than-expected drop in inflation is weakening expectations for further Federal Reserve interest rate hikes, which in turn is seen as reducing the risk of a global recession.
While it has given ground against the Australian Dollar, the Pound remains in positive territory against most of its other peers thanks to this morning’s impressive jobs report.
Original article continues below:
Pound Australian Dollar Exchange Rate Stable Following UK Wage Figures
The Pound Australian Dollar (GBP/AUD) exchange rate is steady so far this morning, following the publication of the UK’s latest employment figures.
At the time of writing the GBP/AUD exchange rate is trading at around AU$1.8538. Virtually unchanged from today’s opening rate.
Pound (GBP) Underpinned by Impressive Jobs Data
The Pound (GBP) is supported this morning by the publication of the UK’s latest jobs report.
According to data published by the Office for National Statistics (ONS), UK unemployment dropped from 3.9% to 3.8% in April. Beating expectations it would rise to 4%.
Headline indicators for the UK labour market for February to April show:
▪️ employment was 76.0%
▪️ unemployment was 3.8%
▪️ economic inactivity was 21.0%➡️ https://t.co/0xoO5q1pRh pic.twitter.com/mwVYesFs9l
— Office for National Statistics (ONS) (@ONS) June 13, 2023
The greater focus for GBP investors, however, is on the accompanying wage growth figures. Average earnings (excluding bonuses) climbed from an upwardly revised 6.8% to 7.2% in April. This smashed forecasts for a more modest increase to 6.9%.
The sharp acceleration in average earnings looks to stoke fears of a wage-price spiral. This is buoying the Pound as it bolsters expectations the Bank of England (BoE) will need to take more decisive action to bring inflation under control.
A greater number of GBP investors now see the BoE raising rates by 50bps when it meets next week.
Emma Mogford, fund manager at Premier Miton Monthly Income Fund, comments:
‘The labour market remains surprisingly tight with unemployment falling and wage inflation increasing.
‘While broadly good news for the UK economy, this is very challenging for the Bank of England. It may mean interest rates have to stay higher for longer to bring inflation back to normal levels.’
However, the data has also caused some volatility in the UK bond markets, with two-year gilts striking their highest levels since the Liz Truss mini-budget disaster. Concerns over which are limiting the Pound’s upside potential this morning.
Australian Dollar (AUD) Bolstered by Risk-On Flows
The Australian Dollar (AUD) is steady this morning as it retains the bulk of its overnight gains. AUD exchange rates rallied through the Asian trading session thanks to a broadly upbeat mood.
The uptick in risk appetite comes after the People’s Bank of China (PBoC) cut rates. Alongside the expectation the Federal Reserve will hit pause on their hiking cycle, this is improving the outlook for global growth.
This offsets the publication of some mixed Australian data earlier in the session, with a surprise drop in business confidence offsetting an uptick in consumer sentiment.
Pound Australian Dollar Forecast: Rebound in UK GDP to Boost Sterling?
The UK’s latest growth figures could provide a boost to the Pound Australian Dollar (GBP/AUD) exchange rate on Wednesday.
April’s GDP release is expected to report domestic growth rebounded from -0.3% to 0.2%. Further evidence that the UK economy is performing robustly in the second quarter will no doubt boost BoE rate hike bets and underpin Sterling sentiment.
Meanwhile the focus for AUD investors will turn to Australia’s own jobs report on Thursday. May’s figures are expected to show a rebound in employment growth.
This may bolster expectations for further rate hikes from the Reserve Bank of Australia (RBA) and could support the Australian Dollar through the latter half of the week.