Pound Australian dollar (GBP/AUD) jumps to twenty-day high amid sticky UK inflation

Pound Australian dollar (GBP/AUD) exchange rate climbs as markets digest UK inflation data

Article updated 16:30, 22/5/2024

The pound Australian dollar (GBP/AUD) exchange rate continues to climb higher this afternoon, amid as risk-averse trade and dialled back Bank of England (BoE) interest rate cut speculations drive movement in the currency pairing.

Markets continued to mull over whether this morning’s sticky UK inflation release would be enough to prompt the BoE to maintain its current base rate throughout the summer months, as the likelihood of a June interest rate cut fell to 15%. In turn, GBP strengthened amid pared back rate cut speculations, leaving pound (GBP) to  extend its winning streak throughout the afternoon against the majority of its rivals.

Tomasz Wieladek, Chief European Economist at T. Rowe Price, said

‘Although there is some evidence services inflation is falling gradually, the data today will likely prevent a cut in June. The MPC has repeatedly said services inflation will be an important indicator in understanding if domestically generated inflation is coming down in sustainable manner.’

Meanwhile, a mixed market mood prevented the highly risk-sensitive Australian dollar (AUD) from edging higher.

At the time of writing, GBP/AUD is trading at around AU$1.9177, up 0.6% from the morning’s opening levels.

Original article continues below:

Pound Australian dollar exchange surges as UK inflation beats forecasts

The pound Australian dollar (GBP/AUD) exchange rate spiked to a near three-week high this morning following the latest UK inflation data.

At the time of writing the GBP/AUD exchange rate is trading at around AU$1.9107, up approximately 0.3% from this morning’s opening rate.

Pound (GBP) leaps amid warmer-than-forecast inflation

The pound (GBP) is gaining ground this morning following the latest batch of UK inflation data.

Headline inflation eased less than forecast in April to 2.3%, falling from 3.2% in the previous month and above market projections of 2.1%. Similarly, core inflation fell to 3.9% from April’s 4.2%, beating market forecasts of 3.6%.

The slightly warmer-than-expected CPI and core readings saw GBP initially rally against some of its peers as signs of persistent inflation led investors to slightly dial back their Bank of England (BoE) interest rate cut speculations.

James Smith, Developed Markets Economist at ING, commented:

‘The figures therefore aren’t a total game-changer for the Bank of England which will look at the numbers and see more noise than signal. But we think it does reduce the chances of a rate cut at June’s meeting, even though we’ll get another set of data before that decision.’

Amid a decreased likelihood of imminent monetary loosening, Sterling may continue to garner investor support as the session progresses.

Australian dollar (AUD) wavers amid data lull

The Australian dollar (AUD) is trading without a clear direction this morning amid a lack of fresh domestic releases.

Amid an absence of data, hawkish commentary from the Reserve Bank of Australia (RBA) serves to keep the ‘Aussie’ afloat.

The publication of the RBA’s latest meeting minutes read:

‘A higher cash rate might also be required, even with ongoing weakness in aggregate demand, if other factors slowed the pace of disinflation. Members observed that this could occur if trend productivity growth turned out to be weaker than assumed, unless wages growth were to moderate in response.’

Elsewhere, a mixed market mood prevents the acutely risk-sensitive Australian dollar from edging higher against its peers. With AU data in short supply for the remainder of the session, AUD could struggle to edge higher against its rivals as the session progresses.

Pound Australian dollar exchange rate forecast: AU PMIs in focus

Looking ahead, Australia’s latest PMIs are due for release overnight. The manufacturing index is set to break into expansion territory at 50.1 in May, breaking a three-month contraction streak. Meanwhile, the services PMI is also due to print in expansion territory at 53.2, slowing slightly from April’s 53.6.

Should the PMIs print as forecast, AUD may strengthen against its rivals amid signs of notable economic expansion this month in both the services and manufacturing sectors this month.

The UK’s latest PMIs are also due for release tomorrow afternoon and could drive notable volatility for GBP exchange rates. Activity in the services sector is due to have slowed to 53.5 in May, down from 55, while manufacturing is due to have decelerated at a softer pace to 49.7.

The mixed readings may lend GBP some support amid signs of continued growth in both sectors.

Yasmine Arasteh

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