Pound Australian Dollar (GBP/AUD) Surges amid Mixed UK Employment Data
The Pound Australian Dollar (GBP/AUD) exchange rate is soaring as the latest jobs data cemented another hike from the Bank of England (BoE).
At time of writing, the GBP/AUD exchange rate is around $1.9645, a 0.48% jump from the morning’s opening levels.
Pound (GBP) Strengthened by Elevated Rate Hike Bets
The Pound (GBP) is finding renewed strength this morning against its peers despite a relatively poor labour market report.
Unemployment ticked higher to 4.2%, worse than the expected unchanged 4%, the highest since late 2021. Employment growth also surprised to the downside as the number of people in employment fell by 66k, compared to an expected 75k rise. It was the first fall in job creation in a year, highlighting a cooling labour market.
However, despite the flurry of downbeat data, one aspect of the labour market report that buoyed investors was another month of surging wage growth. Headline pay continued to accelerate, this time to 8.2%, a record high not seen since 2001. This now places more pressure for the Bank of England (BoE) to continue raising interest rates, bolstering Sterling.
The latest employment data has all but cemented a rate hike at the next policy meeting in September. Despite signs that the labour market is finally softening, stubbornly-high wage growth posits the biggest problem to the BoE. James Smith, economist at ING, commented on the latest data:
‘Overall, despite the apparent weakening in hiring and ongoing improvement in worker supply, the Bank will remain focused on wages. When it comes to tomorrow’s CPI figures, we think there’s some scope for a positive surprise on services inflation, but ultimately a September rate hike still looks nailed-on.’
Australian Dollar (AUD) Undermined by Faltering Chinese Economy
Meanwhile, the Australian Dollar (AUD) is weakening against its peers as a cocktail of headwinds is keeping the risk-sensitive ‘Aussie’ under pressure.
Dovish minutes from the Reserve Bank of Australia (RBA) weighed heavily as the central bank reiterated the need for further rate hikes would be data dependant. Further details of the policy meeting revealed that the board did consider a 25bps increase. The minutes also said:
‘Inflation heading in right direction, though service inflation too high. Board saw “plausible scenarios” where inflation took longer than acceptable to return to target.’
Elsewhere, China’s central bank unexpectedly cut the interest rates as the country continues to struggle with its post-Covid recovery. Disappointing retail sales and industrial production in the world’s second-largest economy also sapped risk appetite. With fears mounting of global growth slowing, the risk-off mood is denting the Australian Dollar.
Pound Australian Dollar Exchange Rate Forecast: Cooling UK Inflation to Boost Sterling?
Looking ahead, the Pound Australian Dollar exchange rate could see further movement with the latest inflation data for the UK. Despite an expected sharp cooldown from 7.9% to 6.8%, which would be the lowest level since March 2022. But with annual energy price comparisons being the biggest driver, core inflation is still expected to climb to 7.1%, matching May’s 31-year high.
Meanwhile, the Australian Dollar will be left to trade on market sentiment amid a lack of economic data. However, if the People’s Bank of China (PBoC) were to announce further measures to bolster economic growth in the form of policy stimuli, risk sentiment could recover, boosting the ‘Aussie’.