The Pound Australian Dollar (GBP/AUD) exchange rate seesawed last week as UK inflation cooled more than forecast.
What’s Been Happening: Pound Volatile amid Cooling Inflation
The Pound (GBP) was bolstered at the start of last week by an upbeat mood as well as positive jobs data. The UK’s unemployment rate held at 4.2% in September, rather than rising as expected. Meanwhile, wage growth remained robust.
However, these gains were erased following the latest UK inflation data. Both core and headline inflation cooled beyond expectations, denting Bank of England (BoE) interest rate hike bets.
The Pound then attempted to stage a modest recovery on Thursday, following hawkish comments from BoE policymaker Megan Greene. In a speech, Greene played down rate cut expectations, raising concerns over persistent inflation.
On Friday, GBP’s fortunes soured once again following a shock contraction in UK retail sales in October. Furthermore, September’s reading was revised lower sparking fears of a winter recession, which pulled GBP lower.
Meanwhile, the Australian Dollar (AUD) initially stumbled amid deteriorating business and consumer confidence. However, positive Chinese data helped to revive AUD demand.
The ‘Aussie’ then struggled on Thursday in response to a mixed jobs report. The market mood then began to improve on Friday, lifting the risk-sensitive Australian Dollar.
Three Things to Watch Out for This Week
- UK Autumn Statement
UK Chancellor Jeremy Hunt is due to unveil his latest Autumn Statement on Wednesday. If investors are receptive to his rumoured ‘budget for growth’ Sterling could climb.
- RBA Meeting Minutes
The Reserve Bank of Australia (RBA) will release the minutes from its latest meeting on Tuesday. Hawkish sentiments could lift AUD.
- UK PMIs
Thursday brings the release of the UK’s latest flash PMIs. Minimal growth in the service sector could weaken GBP exchange rates.
Pound Australian Dollar Forecast
Elsewhere, the GBP/AUD exchange rate could see volatility this evening following a speech from BoE Governor Andrew Bailey. With UK inflation seeming to have turned a corner, Bailey may signal that interest rates have peaked.