Pound Australian Dollar Exchange Rate Fluctuates as Economy Grows Modestly
The Pound Australian Dollar (GBP/AUD) exchange rate is trading erratically despite the UK economy defying fears of stagnation and unexpectedly expanded.
At time of writing the GBP/AUD exchange rate is trading around $1.9432, a 0.58% surge from this morning’s opening levels.
Pound (GBP) Boosted by Upbeat GDP Growth
The Pound (GBP) is finding some modest strength against its peers this morning in the wake of upbeat GDP growth data.
Against expectations of a stalling in the second quarter of this year, the UK economy grew 0.2% QoQ, and 0.5% on a monthly basis in June. The Office for National Statistics (ONS) reported that the economy bounced back from a disappointing May and could now pave the way for further hikes from the Bank of England (BoE).
After the central bank reiterated that it was the resilience of the economy that would underpin their judgement. A bolstering of further interest rate hikes could be supporting the Pound this morning.
However, the UK is still the only advance economy yet to regain its pre-Covid level. Also, the double-edged sword of soaring borrowing costs could also be weighing on Sterling. The relentless surge of interest rates could tip the UK into a recession by the end of the year. Ruth Gregory, economist at Capital Economics commented:
‘With much of the drag from higher interest rates still to come, we are sticking to our below-consensus forecast that the UK is heading for a mild recession later this year.’
Australian Dollar (AUD) Supported by Hawkish RBA
Meanwhile, the Australian Dollar (AUD) is holding its ground amid a cautiously optimistic market mood. Hawkish comments from Reserve Bank of Australia (RBA) helped prop up the ‘Aussie’ amid expectations of further tightening.
Speaking at a testimony at Parliament House in Canberra on Friday, RBA Governor Philip Lowe appeared hawkish in his comments. Stating that policymakers are keeping their options open to further tightening, albeit more gradually. Lowe said:
‘It is possible that some further tightening of monetary policy will be required to ensure that inflation returns to target within a reasonable timeframe.’
However, preventing any further gains was an air of caution surrounding market sentiment today. With US-China tensions simmering after the US restricted investment in Chinese technology, the markets are also nervy ahead of further US inflation data today.
Pound Australian Dollar Forecast: US PPI Inflation to Boost the Aussie?
Looking ahead, the Pound Australian Dollar exchange rate could see further movement with the release of second-tier inflation data for the US. If producer price inflation also disappoints after softer-than-expected headline CPI, rate hike bets could be pared further, boosting market sentiment. The risk-sensitive ‘Aussie’ could subsequently climb on improving market moods.
Meanwhile, without any further data to close out the week, Sterling could climb higher if the post-GDP growth optimism bounce continues.