Pound Australian Dollar (GBP/AUD) Exchange Rate Holds Strong amid Risk Aversion
The Pound Australian Dollar (GBP/AUD) exchange rate has risen to a two-week high this morning as a bearish market mood weighs on the risk-sensitive ‘Aussie’.
At the time of writing, the GBP/AUD exchange rate is trading at AU$1.9211, up over 0.4% from the end of yesterday’s session.
Australian Dollar (AUD) Struggles in Risk-Off Trade
The Australian Dollar (AUD) is on the defensive today as a souring market mood saps demand for the risky currency.
The sharp deterioration in risk appetite follows some hawkish comments from Federal Reserve Chair Jerome Powell yesterday evening.
Investors had been betting that the Fed was done raising interest rates – a prospect that cheered markets as it would mean financial conditions wouldn’t become as tight as feared, which in turn would be good news for the global economy.
Many were anticipating a dovish speech from Powell following recent weak jobs data. Instead, the Fed chief struck a more hawkish tone. Powell said:
‘The Federal Open Market Committee (FOMC) is committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2 percent over time; we are not confident that we have achieved such a stance… If it becomes appropriate to tighten policy further, we will not hesitate to do so.’
These comments rattled markets by putting another rate hike this year firmly back on the table. The subsequent risk aversion dragged the ‘Aussie’ lower.
Pound (GBP) Capped by Stagnant GDP
Meanwhile, the Pound (GBP) is struggling to press the advantage this morning despite UK GDP beating forecasts.
The British economy stalled in the third quarter, rather than contracting 0.1% as was expected.
While the UK managed to avoid negative growth, the reading was still the worst GDP result since the third quarter of 2022. It points to a sluggish economy that continues to skirt a recession.
James Smith, Developed Markets Economist at ING, argues that the picture is rather downbeat when you dig into the data:
‘We shouldn’t make too much of the fact that the UK economy performed a little better than expected in the third quarter. The level of real GDP was flat relative to the second quarter, compared to consensus and our own expectation of a 0.1% decline.
‘The details reveal that the economy was rescued by net imports, a category that tends to be pretty volatile between quarters. Other key areas – notably consumption and business investment – were negative on the quarter.’
GBP/AUD Exchange Rate Forecast: Next Week to Bring Volatility?
Looking ahead, if the market mood remains downbeat then Sterling could push higher against the risk-sensitive Australian Dollar. That said, the UK GDP data could keep a lid on the Pound through to the end of the session.
Attention then turns to next week’s trade, with some potentially high-impact economic data due out early in the week.
Australia’s latest consumer confidence index is due out on Monday night. An expected uptick could lend the ‘Aussie’ some support.
The following day, the UK’s latest labour market report is due out. Could a rise in unemployment and signs that wage growth has peaked dent the Pound by weighing o Bank of England (BoE) interest rate hike bets?