The Pound Australian Dollar (GBP/AUD) exchange rate rallied last week as persistent inflationary pressures and strong wage growth strengthened Bank of England (BoE) rate hike expectations.
What’s Been Happening: GBP/AUD Exchange Rate Surges Despite UK Inflation Fears
The Pound (GBP) started the week slowly amid a lack of data. Ongoing concerns over the fragility of the UK economy weighed heavily.
However, Sterling soon found support with the latest employment data. Despite the jobless rate unexpectedly climbing, wage growth accelerated at a record pace.
Midweek, UK inflation met expectations and eased to a 17-month low of 6.8%. However, core inflation remained sticky and further bolstered BoE interest rate hike bets, boosting the Pound.
Disappointing UK retail sales prevented further gains for Sterling on Friday. Sales fell by 1.2% in July against an expected 0.5% decline. Raising further concerns over the UK economy’s resilience.
Meanwhile, the Australian Dollar (AUD) opened the week on the back foot as dovish minutes from the Reserve Bank of Australia (RBA) were compounded by softer-than-expected wage growth.
Furthermore, an unexpected climb in unemployment saw AUD investors pare back interest rate hike expectations, denting the ‘Aussie’ further.
Market sentiment waned as China’s economic recovery continue to stutter, dragging the risk-sensitive Australian Dollar down to close the week’s session out on a fresh three-year low against the Pound.
Three Things to Watch Out for This Week
- UK PMIs
An expected drop in the UK’s services PMIs could dent Sterling this week as growth in the crucial services sector is predicted to slow for a fourth consecutive month.
- Australian PMIs
A predicted return to expansion in the manufacturing sector could buoy the Australian Dollar. The first growth recorded in manufacturing since February could be offset by a struggling services sector, expected to remain in contraction territory.
- Risk Sentiment
Ongoing global growth fears amid elevated global interest rates and a stuttering Chinese economy could keep both risk appetite and the ‘Aussie’ pressured.
Pound Australian Dollar Forecast
Elsewhere, economic jitters in the UK could weigh on Sterling as investors continue to grapple with recession fears and the central bank’s relentless hiking cycle.