Pound Australian Dollar (GBP/AUD) Fluctuates amid Bleak UK Economic Outlook
The Pound Australian Dollar (GBP/AUD) exchange rate is trading narrowly as fears are growing that the UK will enter a shallow recession by the end of the year.
At time of writing, the GBP/AUD exchange rate is around $1.9014, relatively unchanged from this morning’s opening levels.
Pound (GBP) Undermined by Recession fears
The Pound (GBP) is struggling for demand this morning as economists at Bloomberg join the choruses of concerns over the UK edging towards a recession.
As inflation in the UK remains stubbornly high and is above other G7 countries, they are predicting the UK to fall into a recession in the fourth quarter of this year. With headline CPI holding firm at 8.7%, another 50bps rate hike from the Bank of England (BoE) bolstered the expectation of their aggressive rate hike cycle tipping the UK into a recession. Bloomberg economists Ana Andrade and Dan Hanson commented:
‘The risk is the data continue to prove unresponsive to the BOE’s actions and interest rates rise further than our baseline. As borrowing costs move above 5%, we think the risk of a financial stability shock increases exponentially.’
The recession could last for a year and would wipe out 1% of the UK’s GDP as economists expect the BoE to continue raising the interest rates to a peak of 5.75%. The Pound could come under increased pressure as the economic outlook darkens.
Australian Dollar (AUD) Supported by Chinese Economic Boost
Meanwhile, the Australian Dollar (AUD) is finding modest strength after Beijing announced ‘pragmatic measures’ to boost economic growth after a stuttering post-Covid recovery.
Chinese Premier Li Qiang said that China, the world’s second-largest economy, is still on track to meet its annual growth target. He also added that Q2 growth could exceed that of Q1. Li reassured the markets and said:
‘We will launch more practical and effective measures in expanding the potential of domestic demand, activating market vitality, promoting coordinated development, accelerating green transition, and promoting high-level opening to the outside world.’
With the global market mood boosted on the news, the risk-sensitive ‘Aussie’ is finding some much-needed strength after the gloomy sentiment of late.
Pound Australian Dollar Exchange Rate Forecast: Easing Australian Inflation to Dampen the Aussie?
Looking ahead, the Pound Australian Dollar exchange rate could see further movement on Wednesday as the latest headline CPI data for Australia is released. An expected cooling to 6.1% could pare rate hike expectations from the Reserve Bank of Australia (RBA).
Meanwhile, the Pound will be left to trade on market sentiment amid a lack of economic data. Speeches from both BoE Governor Andrew Bailey and Chief Economist Huw Pill could influence Sterling. However, with growing fears of a recession, the mood could be more cautious, and the Pound could stumble on dovish comments.