The Pound Australian Dollar (GBP/AUD) exchange rate weakened last week as the US Dollar (USD) collapsed in the wake of softer-than-expected inflation, substantially improving global risk sentiment.
What’s Been Happening: GBP/AUD Exchange Rate Slips on Improving Risk Sentiment
The Pound (GBP) was propelled to a three-month high against the Australian Dollar (AUD) in the first half of the week.
This upswing in Sterling was supported by the UK’s latest jobs report. Stronger-than-expected wage growth in May boosted Bank of England (BoE) rate hike bets. Despite unemployment unexpectedly climbing.
Meanwhile, the Australian Dollar opened the week on the back foot as fears of a global slowdown weighed on market sentiment. An unexpected stalling of Chinese inflation exacerbated concerns of China’s post-Covid recovery, denting the risk-sensitive ‘Aussie’.
Midweek, the Australian Dollar began to recoup some losses after Reserve Bank of Australia (RBA) Governor Philip Lowe opened the door to further tightening.
This rebound in AUD then accelerated after US inflation data cooled more than expected. The subsequent jump in risk appetite buoying the Australia Dollar.
The resulting slump in GBP/AUD was then tempered after the UK’s latest GDP release surprised to the upside. Despite reporting a contraction in May, the UK economy avoided a predicted 0.3% decline and only shrank by 0.1%.
Three Things to Watch Out for This Week
- UK Inflation
Despite another expected tumble, headline CPI is predicted to remain high at 8.2%. The Pound could be buoyed at the expectations of further tightening, but fears of a recession could offset gains.
- Australian Labour Market Data
If the labour market remains tight, prospects for further hikes from the RBA could boost the ‘Aussie’.
- UK Retail Sales
Expectations of a 0.2% decline in retail sales could dampen demand for the Pound amid mounting concerns over the economy.
Pound Australian Dollar Forecast
Elsewhere, the latest meeting minutes from the last RBA policy meeting could boost the Australian Dollar. Assuming the minutes echo Lowe’s hawkish tone and hint at further tightening from the RBA.