Pound Australian Dollar (GBP/AUD) Exchange Rate Climbs amid Optimistic Forecasts for UK Economy

February 8, 2023 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Climbs amid Optimistic Forecasts for UK Economy

Pound Australian Dollar (GBP/AUD) Exchange Rate Bolstered by Optimistic UK Forecasts

The Pound Australian Dollar (GBP/AUD) exchange rate rose on Wednesday. The pairing found support from upbeat forecasts for the UK economy, as well as some hawkish comments from Bank of England (BoE) policymakers.

A return of global risk appetite kept the exchange rate’s gains limited, however.

At time of writing the GBP/AUD exchange rate was at around AU$1.7349, which was up roughly 0.3% from that morning’s opening figures.

Pound (GBP) Gains as UK Outlook Improves

The Pound (GBP) rose on Wednesday amid a rosier outlook for the UK economy. Mixed expectations for the Bank of England’s (BoE) forward policy also prompted movement in Sterling.

GBP saw gains off the back of an upbeat session in the UK’s FTSE 100 index. The shares index hit a fresh all-time high on Wednesday amid speculation that the UK could avoid recession.

Traders took heart from a report by the National Institute for Economic and Social Research (NIESR) released on Wednesday. NIESR’s report indicated that the UK will likely avoid a recession in 2023.

The optimism of these forecasts were undercut by NIESR’s downgrade in its GDP growth forecasts. NIESR revised its forecast for 2023 to 0.2%, down from 0.7% in its last forecast in November. The research institute also outlined how UK households would continue to face a severe drop in living standards. This downbeat outlook capped gains for GBP.

Recent hawkish comments from BoE policymaker Catherine Mann provided further support to the Pound. After previous dovish expectations for the central bank’s forward outlook, Mann signalled that the BoE may be forced to hike interest rates further.

Speaking in Budapest on Monday, Mann said:

‘We need to stay the course, and in my view the next step in Bank rate is still more likely to be another hike than a cut or hold.’

Australian Dollar (AUD) Subdued as Industrial Sector Struggles

The Australian Dollar (AUD) saw muted movements on Wednesday despite a return of risk appetite. Poor data from the country’s industrial sector as well as China-US tensions limited any upward movement for AUD.

The latest reading of the Ai Group Australian Index overnight pointed to a deepening contraction for the sector in December/January 2023. The index fell by 10.5 points to a reading of -11.6. Falling demand as well as supply chain and labour pressures contributed to the downturn.

Ongoing US-China tensions also kept pressure on the ‘Aussie’. Chinese and US authorities continued to argue over the reported presence of a Chinese surveillance balloon.

A risk-on market mood limited any drastic losses for the ‘Aussie’, however.

GBP/AUD Exchange Rate Forecast: Will UK Contraction Weigh on Pound?

Looking to the week ahead for the Pound, the latest economic growth data on Friday could weigh on Sterling if it prints as forecast. December’s GDP figures are expected to point to a contraction in the UK’s economy. The data could reignite fears of a UK recession in 2023 and pull GBP lower.

On the other hand, Friday’s GDP growth figures for the fourth quarter of 2022 could help stem any losses for Sterling. Fourth quarter growth is expected to stagnate. The data could add to speculation that the UK may escape the worst effects of a recession.

For the Australian Dollar, a statement from the RBA on their future monetary policy could bolster AUD. Markets will be looking for any additional hawkish signals following the RBA’s confirmation earlier this week that further rate hikes were on the way.

The latest Chinese inflation data on Friday could also push the ‘Aussie’ higher. January’s rate of inflation is expected to climb in the world’s second-largest economy. The figures could help to belay fears of deflation in the Chinese economy.

With no other major data releases, the Australian Dollar may also be affected by any shifts in risk appetite and commodity prices.

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