Pound Australian Dollar Exchange Rate News: GBP/AUD Drops as UK Economy Contracts

November 11, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Drops as UK Economy Contracts

GBP/EUR Exchange Rate Weakens amid UK’s Gloomy Economic Outlook

The Pound to Euro (GBP/EUR) exchange rate fell on Friday, weighed down by the UK’s quarterly GDP report.

At time of writing the GBP/EUR exchange rate traded at around €1.1433, which was roughly down 0.3% from Friday’s opening rate.

Pound (GBP) Dragged Down by Recession Woes

The Pound (GBP) was under pressure on Friday, undermined by the contraction of growth reported in third quarter GDP report.

Sterling struggled for support as investors focused on the UK’s poor economic outlook. According to the GDP report, supplied by the Office of National Statistics (ONS), UK economic growth contracted by 0.2% between July and September.

Whilst this missed the forecast drop of 0.5%, the implications of a contraction weighed on GBP on Friday. According to James Smith, research director at the Resolution Foundation all eyes will now be on Chancellor Jeremy Hunt’s autumn statement to offer peace of mind for UK consumers:

‘These latest figures provide a sobering backdrop to the Autumn Statement next week. The Chancellor will need to strike a balance between putting the public finances on a sustainable footing, without making the cost-of-living crisis even worse, or hitting already stretched public services.’

Jeremy Hunt warned of a ‘tough road ahead’ on Friday. Hunt has said the Autumn budget will aim to protect the most venerable UK consumers. Although investors are concerned about the pressure more spending cuts and tax increases could place on the UK economy.

Australian Dollar (AUD) Strengthens in Risk-On Trade

The Australian Dollar (AUD) trended higher on Friday as the risk-sensitive currency continued to attract support amid a prevailing risk-on mood.

This upbeat mood came on the bank of Thursday’s US consumer price index. This reported US inflation cooled more than expected in October, prompting USD investors to drastically scale back their expectations for the Federal Reserve’s December interest rate hike.

The overwhelming market consensus now predicts the Fed will deliver a more modest 50bps rate hike next month.

The moderation of Fed rate hike expectations triggered a broad market rally on hopes that less restrictive US monetary policy could lead to a shallower global recession than investors previously feared.

The uptick in the ‘Aussie’ was also supported by reports that China has begun to relax some of its Covid restrictions.

GBP/EUR Exchange Rate Forecast: Euro to Fall in Wake Industrial Production Data

Looking ahead, the Pound Euro exchange rate could be driven by UK jobs data in the first half of next week.

Data scheduled for release on Tuesday might weaken the Pound. Unemployment in the UK is expected to increase from 3.5% to 3.6%, signalling a cooling jobs market, which could cause investor jitters. However, if the data prints better than expected, this could ease economic concerns and limit Sterling’s losses.

Meanwhile the focus for AUD investors in the first half of next week is likely to be on the publication of the minutes from the Reserve Bank of Australia’s (RBA) latest policy meeting. Could a dovish outlook place some pressure on the ‘Aussie’?

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TAGS: Pound Australian Dollar Forecasts