Pound Australian Dollar Exchange Rate News: GBP/AUD Surged as UK Inflation Softened

September 14, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Surged as UK Inflation Softened

Pound (GBP) Strengthened as Inflation Eased

The Pound (GBP) enjoyed moderate success against its major rivals on Wednesday as CPI reading for August fell below expectations and hit 9.9%.

Despite inflation remaining close to 40-year high, the cost-of-living eased slightly as tumbling fuel prices finally reached the consumer. Expectations of a 10.2% rise in CPI YoY for August fell short as inflation fell to 9.9%, the first drop since October 2021. But food and non-alcoholic prices continued to climb as prices rose by 0.5%. The Office for National Statistics (ONS) said of the headline reading:

‘Food and non-alcoholic beverages made the largest upward contribution to the monthly rates in August 2022, while falling prices for motor fuels resulted in a large offsetting downward contribution.’

Discounting volatile items, the core inflation still ticked higher, quashing any premature thoughts of inflation easing. Tracking the change in consumer prices, core CPI increased 6.4% YoY in August, a fresh record high. Food and non-alcoholic drinks rose by the fastest rate since 2008 as they increased by 13.1% compared to last year.

Lending further support to Sterling is the maintained stance of the Bank of England (BoE). Despite a softening inflation rate, the CPI reading remains five times higher than the 2% target rate. As BoE maintains its stance on combating surging inflation, rate hike expectations of 0.5% is still very much on the table.

However, experts fear that the easing of inflation rate could be short lived. With many surges in prices of the CPI were offset by tumbling fuel prices. Paul Dales, Chief Economist at Capital Economics, that inflation is still on track to peak at 11%. He said:

‘With the oil price now just above $90 a barrel, fuel prices will fall further in the coming months. And after the 25% month-on-month rise in utility prices on 1 October (as the Ofgem price cap increases to £2,500), which will add 0.7 percentage points to CPI inflation and drive it to a peak of about 11%, the government price freeze means that utility price inflation will slump from 69.7% now to zero by October next year.’

Australian Dollar (AUD) Slumped on Risk-Averse Market amid Mounting Recession Fears

The Australian Dollar (AUD) weakened considerably against some of its peers on Wednesday as global recession fears return. After a brief risk-on impulse that buoyed the risk-sensitive ‘Aussie’, hotter-than-expected US inflation has spooked investors as increased rate hike expectations grow. US inflation crept higher than expected and came in at 8.3%, against an expected 8.1%, bolstering recession fears.

Meanwhile, further troubling news out of China is likely weighing on the Australian Dollar as continued Covid-related lockdowns are stifling an already stuttering economy. With more than 65million Chinese citizens set to be locked down throughout the country, a slowdown in manufacturing, along with many industries, could be expected to weigh on the ‘Aussie’.

Staying with China, and lending some moderate support to the Australian Dollar, is news of a rollout of property policies across China as the country attempts to fix the property crisis. According to Bloomberg, Chinese cities are implementing measures to boost waning demand in housing. With a property crisis that has weighed down the country, local governments have started to roll out easing measures, including cuts to minimum down payments, and calling for parents to assist their children in house purchases.

GBP/AUD Exchange Rate Forecast: Strong Jobs Data to Boost the Aussie?

Looking ahead, the Pound Australian Dollar exchange rate could be left to market sentiment as data remains thin. Thursday sees the release of employment data for Australia. The unemployment rate is set to remain steady at 3.4%, holding a record low. If forecasts prove accurate, the ‘Aussie’ could see a boost.

Meanwhile, domestic issues are likely to weigh on Sterling until Friday when retail sales are released. Ongoing strikes and the cost-of-living crisis could keep a lid on any significant gains for the Pound.

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