Pound Australian Dollar (GBP/AUD) exchange rate flat amid downbeat UK GDP data
The Pound Australian Dollar (GBP/AUD) exchange rate is trapped in narrow boundaries this morning, following confirmation that the UK entered a technical recession.
At the time of writing, GBP/AUD is trading at around AU$1.9324, showing little movement from today’s opening rates.
Pound (GBP) limited by confirmation of recession
The Pound (GBP) is under pressure this morning, amid confirmation that the UK economy has slipped into technical recession.
In Q4 2023, the UK economy contracted by 0.3% on a quarterly basis, marking the second consecutive period of decline. Between elevated interest rates, and the cost-of-living crisis, the UK’s economic resilience is now under question.
Liz McKeown, Director of Economic Statistics at the ONS, commented:
‘Our initial estimate shows the UK economy contracted in the fourth quarter of 2023. While it has now shrunk for two consecutive quarters, across 2023 as a whole the economy has been broadly flat. All the main sectors fell on the quarter, with manufacturing, construction and wholesale being the biggest drags on growth.’
This is prompting expectation that the Bank of England (BoE) will enact three 25bps interest rate cuts this year. While inflation remains a sore spot for the UK, news that the economy has actively shrunk may push the BoE into action.
However, as the Pound is an increasingly risk-sensitive currency, the morning’s upbeat trading conditions is stemming its losses.
Australian Dollar (AUD) muted amid two-year high unemployment
The Australian Dollar (AUD) is treading water this morning, following a worse-than-expected batch of jobs data.
In January, unemployment crept above expectations, with the unemployment rate increasing to 4.1%. This is weighing on the ‘Aussie’ by suggesting growing weakness in the Australian labour market, as businesses contend elevated interest rates.
Dr Jim Chalmers, Australian Treasurer, commented:
‘Our labour market has been weakening but it has been weakening from a quite incredibly strong and resilient base. We enter this period of economic uncertainty from a position of genuine strength and the labour market is a big part of that story.’
However, any losses are being stemmed at the moment, due to a bullish market impulse. The ‘Aussie’ is particularly beholden to market moods, and the upbeat trade is allowing it to remain static against its peers.
Pound Australian Dollar exchange rate forecast: UK retail sales in focus
Looking ahead for the Pound, the core catalyst of movement is likely to be the latest retail sales data.
In January, sales are forecast to have improved compared to December’s levels by 1.5%, which could boost Sterling. This would mark a recovery, and could suggest improving consumer spending amongst UK households.
For the Australian Dollar, data releases are few and far between, which may leave it exposed to shifts in risk appetite.
As an acutely risk-sensitive currency, the ‘Aussie’ may struggle for support if trading conditions sour. However, if bullish trade colours the markets, AUD exchange rates may climb.