GBP/AUD Rebounds on Australian Dollar Weakness
(Updated 19:10, 25/08/2023) The Pound Australian Dollar exchange rate managed to regain some lost ground this afternoon as the ‘Aussie’ fell on hawkish comments from the US Federal Reserve Bank. The prospect of policy divergence between the Fed and the Reserve Bank of Australia (RBA) weighed heavily upon the Antipodean currency.
The economically significant Jackson Hole Symposium concluded with hawkish remarks from Fed Chairman Jerome Powell, which effectively squashed hopes the central bank chief would signal a cessation of interest rate hikes.
According to reporters, Powell stated that the economy didn’t cool down as expected, indicating that the Fed will proceed ‘carefully’ at its upcoming policy meetings. He added:
‘There is no way to know what the neutral rate would be,’ prompting markets to bet on another hike in 2023.
Meanwhile, Sterling faces severe headwinds against its other peers. The likelihood of further interest rate hikes from the Bank of England (BoE) caused more alarm than excitement this afternoon, as the prospect of higher returns on investments was overshadowed by the danger of worsening living conditions and more businesses going bankrupt.
In light of changing regulations for oil and gas charges, energy charities are calling for the government to introduce a social tariff that will help the poorest UK households through the winter.
Original article continues below:
Pound Australian Dollar (GBP/AUD) Exchange Rate Drops despite UK Data Surprise
The Pound Australian Dollar (GBP/AUD) exchange rate has fallen further so far today, despite a better-than-expected confidence reading from the UK. The Gfk consumer confidence index printed above expectations at –25, yet the impact of the release appears typically insignificant.
At the time of writing, GBP/AUD is trading at A$1.9602, almost 0.2% below this morning’s opening levels.
Pound (GBP) Strength Fades on Resounding Economic Concerns
The Pound (GBP) is prolonging its downtrend against its peers today as Britain’s economic outlook remains bleak. Warnings of a recession and an accompanying decline in the quality of public services abound as analysts mull over the implications of yesterday’s distributive trades release.
Fresh data from the Confederation of British Industry (CBI) printed at –44 rather than –32 as forecast: a 19-point decline on last month’s reading. This marked the fastest fall in sales since March 2021 and echoed industry data from earlier in the week, which showed that sales growth at British supermarkets slowed in August.
Economists commented that the spending slump related to the impact of high interest rates on household budgets. Martin Sartorius of the CBI said:
‘Against a backdrop of rising interest rates and weak demand, retailers foresee cuts to investment over the next year, while employment is expected to fall again next month.’
The political repercussions of an economy in turmoil compound the uncertainty troubling British households and consumers. A study from the Institute for Fiscal Studies (IFS) thinktank reports that a high level of taxation and weak growth prospects means voters faced a tough choice at the polls.
Helen Miller, a deputy director of the IFS and head of the tax sector, observes: ‘The tax and spend choices that face future governments are not enviable.’
Australian Dollar (AUD) Trades in Mixed Range Following PMI Release
The Australian Dollar (AUD) is firming against the Pound this morning but has faced headwinds in several other exchange rates following the release of disappointing PMI data earlier this week.
The Judo Bank manufacturing and service sector PMIs for August both printed below expectations – at 49.4 and 46.7, respectively. Economists at Markit Economics attributed the readings to a deterioration in business conditions:
‘Business activity in Australia’s private sector fell in August… Higher interest rates constrained demand for both goods and services, though the labour market remained tight.’
Amid a lack of additional economic data, AUD has otherwise been left to trade on risk sentiment and other external factors. Intermittent risk appetite has alternately buoyed and pressured the ‘Aussie’ this week; furthermore, economists at TD Securities note the influence of Chinese economic activity on the currency given the strong trading relationship between China and Australia.
‘We think that Chinese economic stress has already been priced in and any surprise leans to the upside,’ comment TDS analysts; ‘We also think the financial crisis narrative is way overhyped and China’s stimulus is likely to shift sentiment in H2 and early 2024.’
Such an assessment infers the potential for upcoming strength in the Australian Dollar, if the Chinese Yuan (CNY) is also to enjoy a boost.
GBP/AUD Exchange Rate Forecast: Aussie Data Dominates the Docket
Into next week, a scarcity of UK data leaves the Pound Australian Dollar exchange rate to trade at the mercy of AU data and risk appetite. An emboldened market is likely to inspire ‘Aussie’ tailwinds, while bearish trading could support upward movement for GBP/AUD.
If Australian retail sales increased according to July’s preliminary data, AUD may enjoy a boost at the start of the week. Subsequently, a speech by the Reserve Bank of Australia (RBA)’s Michele Bullock may either impress or disappoint ‘Aussie’ investors; while many consider the RBA to be done with monetary policy tightening, some economists have noted the possibility of a final 25bps hike.
UK mortgage data could influence Sterling in the second half of the week, while data from China may buoy the Australian Dollar. Both manufacturing and services activity look to have improved in the world’s second-largest economy in August, although the country’s upcoming PMIs are expected to remain in contraction territory.