Pound Australian Dollar (GBP/AUD) Exchange Rate Sinks as UK Economy Contracts
The Pound Australian Dollar (GBP/AUD) exchange rate has sacrificed a portion of yesterday’s gains so far this morning, as the UK economy is revealed to have shrunk by 0.3% in October.
At the time of writing, GBP/AUD is trading at A$1.9092, virtually unchanged from this time yesterday.
Pound (GBP) Softens on Surprise Economic Contraction
The Pound (GBP) is tumbling against its peers this morning as the latest economic data from the UK disappoints.
The cost-of-living crisis has been continuing to weigh upon household and business expenditure, even as the attention of national political and media attention has been diverted. Consequently, the Office for National Statistics (ONS) reported that GDP fell in October, after growth of 0.2% in September.
UK Chancellor Jeremy Hunt has attempted to dispel headwinds, asserting ‘it is inevitable GDP will be subdued while interest rates are doing their job to bring down inflation… The big reductions in business taxation mean the economy is now well placed to start growing again.’
Yet economists’ forecasts were off, resulting in an inevitable reshuffling of expectations. Following the data, investors’ attention now turns to tomorrow’s interest rate decision from the Bank of England (BoE).
While an interest rate hold is considered certain, the central bank’s commentary is likely to refer to recent economic hurdles. As BoE Governor Andrew Bailey is expected to repeat his commitment to bringing inflation down, the UK government is more concerned with avoiding a recession ahead of next year’s likely elections.
Australian Dollar (AUD) Finds Some Support amid Upbeat Growth Forecast
The Australian Dollar (AUD) is subdued against several peers today but resists significant headwinds as an optimistic growth outlook lends support.
In the mid-year economic and fiscal outlook presented by Labor Treasurer Jim Chalmers during the Asian session, the country’s budget deficit was pegged to shrink significantly. A deficit of A$1.1bn is projected for the year to end June 2024, down from the A$13.9bn forecasted in May this year.
The mid-year update predicts a ‘slowing’ economy in 2023-24 but counters this with growth of 2.25% in 2024-25 ‘as inflation subsides following its peak in 2022 and household disposable incomes improve’.
Overall the tone of the report is upbeat, buoying AUD alongside recent confidence data. Westpac’s Consumer Confidence report for December showed improvement at 2.7%; although the National Australia Bank (NAB)’s business confidence index declined to 9 from the previous decrease of 2.
Yet positive comments from Reserve Bank of Austral (RBA) Governor Michele Bullock temper AUD losses. ‘Don’t think we are falling behind in the inflation fight,’ instructed Bullock, emphasising the bank’s commitment to closely monitoring data and preserving employment gains.
GBP/AUD Forecast: BoE Decision Attracts Attention
The Pound Australian Dollar exchange rate will most likely trade tomorrow according to the specifics of the Bank of England (BoE)’s interest rate announcement.
Governor Bailey is expected to reiterate the BoE’s inflation-busting mandate, though may also comment upon the economy’s recent contraction. BoE policymakers must find a fine balance between bringing price pressures down without derailing growth.
Meanwhile, Australian jobs data is expected to reveal a marginal increase in AU unemployment, potentially weighing upon the Antipodean currency. The AU economy is forecast to have added 11k jobs in November; down from 55k the previous month.
Later on, private sector manufacturing and services PMIs are forecast to reveal a pickup in activity within the Australian economy, although both are expected to remain below 50 – within contraction territory still. Nevertheless, a small degree of improvement may serve to boost the ‘Aussie’, effectively sinking GBP/AUD.