Title: Pound Australian Dollar Exchange Rate News: GBP/AUD Strengthened after UK Economy Rebounds

March 10, 2023 - Written by John Cameron

STORY LINK Title: Pound Australian Dollar Exchange Rate News: GBP/AUD Strengthened after UK Economy Rebounds

Pound (GBP) Buoyed by Rebounding UK Economy

The Pound (GBP) surged on a better-than-expected economic recovery in January. Despite a marginal improvement over an expected 0.1% increase, GDP expanded by 0.3% after a woeful 0.5% contraction in December.

The cost-of-living crisis and industrial action weighed heavily in December, and the economy is still struggling to recover from the persistent issues. However, the better-than-expected recovery could prove to be invaluable for Chancellor Jeremy Hunt ahead of his Spring Budget next week. A stronger-than-expected economy could allow Hunt more breathing room when it comes to spending and tax plans. Commenting on the data, Hunt said:

‘In the face of severe global challenges, the UK economy has proved more resilient than many expected, but there is a long way to go.

‘Next week, I will set out the next stage of our plan to halve inflation, reduce debt and grow the economy - so we can improve living standards for everyone.’

However, concerns of a recession still linger. Despite a welcome rebound, quarterly GDP still remains stagnant, and the economy is still below its pre-Covid level. Yael Selfin, Chief Economist at KPMG UK, commented on the data:

‘The marked fall in wholesale gas prices and easing of supply chain disruptions provided a welcome boost to economic prospects at the start of 2023. But this may not be sufficient to stave off a recession in the first half of this year, as consumer spending remains weak with households continuing to be squeezed by elevated prices and higher interest rates.’

Australian Dollar (AUD) Subdued on Risk-Off Market Mood

Meanwhile, the Australian Dollar (AUD) struggled for demand amid a lack of major economic data. Compounded by an increasingly dovish Reserve Bank of Australia (RBA), the risk-sensitive ‘Aussie’ floundered heading into the weekend.

With an expected 25bps rate hike met by the central bank, the dovish statement that followed soured AUD investors. With the possibility of a pausing of rate hikes, investors have since repriced expectations, dragging the Australian Dollar lower.

Elsewhere, concerns over China’s post-Covid recovery could also be troubling investors and global market sentiment. The softer-than-expected inflation data from the world’s second largest economy stoked fears that China’s recovery is not as strong as first thought.

GBP/AUD Exchange Rate Forecast: UK Jobs Data to Sap Sterling Support?

Looking ahead to next week’s session, the Pound Australian Dollar exchange rate could see further movement with the release of employment data on Tuesday. An expected increase in the unemployment rate could limit the Bank of England’s (BoE) ability to continue raising interest rate hikes, deterring GBP investors. However, another month of average earnings could allay those fears.

Elsewhere, the Australian Dollar will be trading on market sentiment and risk appetite for most of the week. Employment data for Australia could push the ‘Aussie’ however, if unemployment levels drop as expected.

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TAGS: Pound Australian Dollar Forecasts