The Pound Australian Dollar (GBP/AUD) exchange rate fluctuated wildly last week as a hawkish Bank of England (BoE) stoked UK recession fears.
What’s Been Happening: GBP/AUD Exchange Rate Wavers on UK Economic Woes
The Pound (GBP) opened the week under pressure as the latest Confederation of British Industry (CBI) reported sales volumes unexpectedly declined. Amid sky-high inflation weighing on consumer demand, it marked a second straight month of falling retail sales.
Further weighing on GBP investors were mounting concerns that the Bank of England (BoE) would tip the UK into a recession. Hawkish comments from BoE Governor Andrew Bailey, stoked the prospect of further tightening, and pulled Sterling lower in mid-week trade.
At the end of the week, final GDP growth provided some support for Sterling. Despite only expanding 0.1%, the final reading confirmed the UK avoided a winter recession.
Meanwhile, the Australian Dollar started the week strongly as positive news of China’s economic recovery buoyed the proxy currency.
However, the ‘Aussie’ fell as the latest consumer price index reported a bigger-than-expected fall in domestic inflation. Inflation slowed to 5.6%, denting rate hike bets.
The Australian Dollar managed to pare those losses with better-than-expected retail sales. Predicted to modestly increase by 0.1%, sales in May grew by 0.7%.
Three Things to Watch Out for This Week
- RBA Interest Rate Decision
Expectations of another 25bps rate hike could spur the Australian Dollar higher as the Reserve Bank of Australia (RBA) is forecast to raise interest rates to 4.35%.
- UK Services PMI
A confirmed fifth straight month of growth in the crucial services sector could buoy Sterling, highlighting the economy’s resilience to surging borrowing costs.
- UK Recession Fears
Growing concerns of a long and shallow recession due to sky-high inflation and soaring interest rates could keep a firm lid on the Pound.
Pound Australian Dollar Forecast
Elsewhere, global market sentiment could play a big role in influencing the risk-sensitive ‘Aussie’. With persistent fears of global slowdown, the Australian Dollar could slide on waning risk appetite.