Pound Australian Dollar Exchange Rate Fluctuates as Recession Risks Grow
The Pound Australian Dollar (GBP/AUD) exchange rate is trading narrowly as UK inflation hits a 17-month low.
At time of writing the GBP/AUD exchange rate is trading around $1.9689, relatively unchanged from this morning’s opening levels.
Pound (GBP) Undermined by Recession Risks
The Pound (GBP) is trading with mixed success this morning in the wake of the latest inflation data. Meeting market expectations, headline CPI fell to 6.8%, the lowest level since February 2022.
The Office for National Statistics (ONS) reported that inflation sharply dropped from 7.9% to 6.8% as the cost-of-living squeeze eases. A drastic fall in energy prices was the biggest driver in the annual rate. And for the first time since Autumn 2021, prices are increasing less rapidly than wages. Matthew Corder, ONS Deputy Director of Prices, commented:
‘Inflation slowed markedly for the second consecutive month, driven by falls in the price of gas and electricity as the reduction in the energy price cap came into effect.’
However, despite a marked slowdown, and a far cry from the lofty heights of 11.1% peak inflation, the level remains far above the 2% target. Analysts are concerned that the inflationary outlook is not improving fast enough for the Bank of England (BoE) to deviate from their aggressive rate hiking path. Ruth Gregory, UK Analyst at Capital Economics, commented that another hike is all but priced in, adding:
‘There will be one more labour market and one more inflation release before the Bank of England’s September policy meeting. But with wage growth and services inflation both stronger than the Bank had expected, it seems clear that the Bank has more work to do.’
Australian Dollar (AUD) Supported by Chinese Economic Stimulus
Meanwhile, the Australian Dollar (AUD) is holding its ground fairly well amid a cautiously optimistic market mood. Reports of China’s central bank injecting liquidity into the economy to boost confidence also cheered investors.
With the world’s second-largest economy struggling with its post-Covid recovery, the People’s Bank of China (PBoC) injected ¥297bn of short-term liquidity in the overnight session. Becky Liu, Head of China Macro Strategy at Standard Chartered Bank warned that a flurry of economic headwinds are forcing the PBoC to take drastic action:
‘It is hard to boost the economy easily or the cost is very high. Aside from helicopter money, nothing seems to be very effective so more aggressive actions will be needed to avert this downward momentum.’
Pound Australian Dollar Forecast: Cooling Australian Labour Market to Dent the Aussie?
Looking ahead, the Pound Australian Dollar exchange rate could see further movement with the latest jobs data from Australia. An expected uptick in unemployment, as well as a slowdown in jobs growth could weigh on the Australian Dollar. Signs of a loosening labour market could relieve some of the pressure from the Reserve Bank of Australia (RBA), tempering rate hike bets.
Meanwhile, the Pound will be trading on market sentiment as investors continue to digest the latest inflation data. With recession fears rising once more, Sterling could be hampered by economic concerns.