The Pound Australian Dollar (GBP/AUD) exchange rate climbed to a one-month high last week as a deteriorating market mood weighed on the risk-sensitive ‘Aussie’.
What’s Been Happening: GBP/AUD Rises amid Risk Aversion
Sterling then managed to recoup its losses amid an uptick in Bank of England (BoE) interest rate rise bets. The International Monetary Fund (IMF) warned that UK rates may need to stay higher for longer.
Meanwhile, a decline in iron prices dented the commodity-linked Australian Dollar.
At the end of the week, GBP/AUD leapt higher as a souring market mood put pressure on the ‘Aussie’. US inflation exceeded forecasts, fuelling fears that higher US interest rates would weigh on the global economy.
An escalation of violence in the Israel-Hamas conflict also spooked markets.
Worries about the UK economy may have capped the Pound’s upside. The UK’s latest GDP report indicated stalling growth in the third quarter, while company insolvencies jumped and Chancellor Jeremy Hunt warned of ‘challenges’ and ‘difficult decisions’ ahead.
Three Things to Watch Out for This Week
- UK Wage Growth
The first major UK data release this week is the latest employment report on Tuesday. If wage growth held at a record high in the three months to August, an uptick in BoE rate hike bets could boost GBP.
- UK Inflation
The following day, the UK’s consumer price index for September is out. Signs of stubborn inflation could further support Sterling by raising the likelihood of more policy tightening.
- RBA Meeting Minutes
Meanwhile, the ‘Aussie’ could face headwinds if the Reserve Bank of Australia’s (RBA) latest meeting minutes point to a dovish consensus at the central bank.
While the Pound ‘Aussie’ exchange rate could strengthen through the first part of the week, it could see losses in later trade. Upbeat Australian jobs data and a contraction in UK retail sales may dent GBP/AUD. Meanwhile, risk appetite could inject the pairing with volatility.