Pound Australian dollar (GBP/AUD) exchange rate firms following UK CPI
The pound Australian dollar (GBP/AUD) exchange rate is ticking higher this morning following the publication of the UK’s latest consumer price index.
At the time of writing the GBP/AUD exchange rate is trading at $1.9307, up roughly 0.2% from this morning’s opening rate.
Pound (GBP) supported by UK inflation
The pound (GBP) is enjoying some modest support this morning following a stickier than expected domestic inflation reading.
The Office for National Statists (ONS) confirmed that headline inflation remained at the Bank of England’s (BoE) 2% target in June, rather than falling to 1.9% as expected, while core inflation also remained unchanged, holding at 3.5% rather than falling to 3.4% as predicted.
Additionally, sticky services inflation has further underpinned GBP this morning, as it held at 5.7%, undermining the likelihood of an August interest rate cut from the BoE.
Anna Leach, Chief Economist at the Institute of Directors, commented:
‘The bank will be relieved that headline inflation has remained at target in June in line with their expectations. That relief will be tempered though by services inflation holding at 5.7%, well above their expectations. Stickiness in services inflation – a key measure of domestic inflationary pressures – lowers the likelihood of an August rate reduction. All eyes will be on tomorrow’s wage data to see whether it will spur a summer rate cut by the MPC.’
Australian dollar (AUD) muted amid lull in data
The Australian dollar (AUD) is trapped in a narrow range against the majority of its peers this morning amid the absence of any market moving domestic data.
This leaves movement in the ‘Aussie’ tied to market risk dynamics, as a cautious mood sees investors opt for safer assets.
However, the downside in AUD exchange rates remains limited amid rising expectations the Federal Reserve will begin cutting interest rates in September.
Markets hope that a loosening of US monetary policy will help to prop up global economic growth.
GBP/AUD exchange rate forecast: labour data to drive movement?
Looking ahead, the pound Australian dollar exchange rate is likely to be driven by the publication of both the UK’s and Australia’s latest jobs data, scheduled for release on Thursday.
UK unemployment is forecast to remain at an almost three-year high of 4.4% in May while average earnings (excluding bonuses) are forecast to fall from 6% to 5.7%.
Should the data confirm weakness in the UK labour market along with stalling wage growth, this could revive BoE rate cut bets and in turn undermine Sterling sentiment.
On Friday, the UK’s latest retail sales are expected to show a 0.4% contraction and could see the pound close the week on the back foot.
Turning to the Australian dollar, Australian unemployment is forecast to remain at 4% in June, but will a slowdown in employment growth weaken Reserve Bank of Australia (RBA) interest rate expectations and drag on the ‘Aussie’?