The Pound Australian Dollar (GBP/AUD) exchange rate plummeted last week as a deteriorating outlook for the UK economy overshadowed elevated rate hike bets.
What’s Been Happening: GBP/AUD Exchange Rate Sours on Dismal UK Data
The Pound (GBP) opened the week quietly amid a lack of data. However, elevated interest rate hike bets from the Bank of England (BoE) kept Sterling afloat.
Pressure soon resumed as the latest Confederation of British Industry (CBI) data showed factory output slowed to the lowest level since September 2020.
Midweek, Sterling slumped further on downbeat PMI data. Both the manufacturing and services releases disappointed as business activity unexpectedly contracted.
At the end of the week, the Pound faced further pressure as retail trade fell at its fastest pace since March 2021. With a myriad of downbeat data raising concerns about the UK economy, GBP investors remained wary.
Meanwhile, the Australian Dollar (AUD) started the week off moderately well amid an improving risk appetite. Expectations of central banks ending their interest rate hiking cycles cheered markets.
However, Australian PMIs also disappointed. Both manufacturing and services remained in contraction territory, but the ‘Aussie’ remained supported by an upbeat market sentiment.
Despite a more cautious mood at the end of the week, the Australian Dollar held on to its gains against a flagging Pound and headed into the weekend strongly.
Three Things to Watch Out for This Week
- Australian Inflation
An expected easing of inflation down to 5.2%, the lowest since February 2022, could weigh on the ‘Aussie’ amid pared Reserve Bank of Australia (RBA) rate hike bets.
- BoE Pill Speech
If BoE Chief Economist Huw Pill strikes a dovish tone amid recession fears and economic anxiety, the Pound could soften.
- Chinese Manufacturing PMI
The market mood could lift modestly if the Chinese manufacturing PMI improves as expected. However, it would still mark the fifth straight month of falling factory activity.
Pound Australian Dollar Forecast
Elsewhere, global growth fears are likely to dominate risk sentiment and could cause wild fluctuations in the riskier ‘Aussie’.