Pound Australian Dollar (GBP/AUD) Exchange Rate Slumps on Soft UK Inflation
(Updated 19/7/23, 17:00)
The Pound Australian Dollar (GBP/AUD) exchange rate is nosediving this afternoon as investors are reassessing how high the Bank of England (BoE) will now need to raise interest rates. With softer-than-expected inflation, GBP investors are now paring back rate hike expectations, sending Sterling spiralling.
At time of writing the GBP/AUD exchange rate is trading around $1.9054, a 0.71% drop from this morning’s opening levels.
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GBP/AUD Exchange Rate Falls as UK Inflation Cools to 7.9%
The Pound Australian Dollar exchange rate is dipping after UK inflation eases further than expected, tempering rate hike expectations.
At time of writing the GBP/AUD exchange rate is trading around $1.9104, a 0.22% fall from this morning’s opening levels.
Pound (GBP) Sours on Slashed rate Hike Bets
The Pound (GBP) is under pressure this morning as headline CPI cooled further than expected to 7.9%, the lowest level since March 2022.
A sharp decline in fuel prices meant UK inflation as finally on a downward path, easing the pressure on the Bank of England (BoE). Forecasts are now easing over how aggressively the central bank will need to raise interest rates to tame inflation, sapping demand for Sterling. Belief is now growing in the market that the central bank will no longer need to drive interest rates above 6% by next year.
The Office for National Statistics (ONS) revealed that against expectations of easing to 8.2% from 8.7%, inflation cooled to 7.9%. It was the first surprise to the downside for five months as inflation had remained stubbornly high. Core inflation, excluding volatile prices such as energy and food, declined for the first time since January. A drastic fall in fuel prices led the biggest downward contribution, but easing of food, household goods, and hotels and restaurants also drove the figure lower.
However, despite a stronger-than-expected fall in headline CPI, inflation in the UK still remains far above both the target rate and other major economies. Chancellor Jeremy Hunt, commented on the latest reading:
‘Inflation is falling and stands at its lowest level since last March; but we aren’t complacent and know that high prices are still a huge worry for families and businesses.
‘The best and only way we can ease this pressure and get our economy growing again is by sticking to the plan to halve inflation this year.’
Australian Dollar (AUD) Undermined by Slowing Growth in China
Meanwhile, the Australian Dollar (AUD) remains under pressure from lingering concerns over Australia’s biggest trading partner in China. With the world’s second-largest economy stuttering in their post-Covid recovery, the latest economic data for China shows momentum is slowing.
Overseas demand has cooled, denting exports, and a domestic downturn in the property market has seen confidence sapped in China. With economic growth decelerating sharply in the second quarter, compounded by slowing retail sales, market sentiment remains muted. However, the prospect of economic stimulus from the Chinese government could be limiting losses and keeping the ‘Aussie’ relatively supported.
Pound Australian Dollar Forecast: Australian Labour Market Data to Boost the Aussie?
Looking ahead, the Pound Australian Dollar exchange rate could see further movement with the release of the latest labour market data for Australia. Despite an expected slowdown in job growth, the unemployment rate to stay at historically low levels. The jobless rate is predicted to remain unchanged at 3.6%, which could still point to a tight labour market.
Meanwhile, GBP investors will have to look to Friday’s retail sales for further impetus. An expected 0.2% increase in retail sales could boost Sterling, despite a mild slowdown from May.