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GBP AUD Exchange Rate Volatile as UK Inflation Skyrockets

May 16, 2017 - Written by John Cameron

The Pound Australian Dollar (GBP AUD) exchange rate has fluctuated this morning following the release of the UK’s latest inflation figures.

According to data released by the Office for National Statistics (ONS) UK inflation rocketed from 2.3% to 2.7% in April, reaching its highest levels since September 2013 and outpacing initial forecasts that it would rise to 2.6%.

The jump was largely prompted by higher air fares as the Easter holidays fell later in the year than in 2016, however rising prices for clothing and electricity also contributed.
The Pound was pressured as markets fear that the rapid acceleration in inflation will lead to a significant drop in consumer spending, with UK households facing a drop in real pay as wage growth is expected to fall to just 1% over the coming year.

Andrew Sentance, senior economic adviser at PwC said;

‘Inflation is set to rise to around 3pc or higher in the months ahead - with prices likely to be rising faster than wages. The resulting squeeze on consumer spending will reinforce the slowdown in economic growth we are now seeing.’

Also causing a drop in Sterling are recent comments from Bank of England (BoE) Governor Mark Carney, who said just last week that the recent uptick in inflation its largely attributed to the depreciation of the Pound since Brexit and that it would not impact the Bank’s decision to leave interest rates on hold.

Meanwhile the Australian Dollar has also struggled today following a report from economists at ANZ who suggest that the Reserve Bank of Australia (RBA) is likely to leave interest rates unchanged ‘deep into 2018’.
David Plank and Giulia Lavinia Specchia, analysts at ANZ suggest that the central bank is likely to be held back from tightening its monetary policy as over the coming year as underlying inflation remains weak, writing;
‘The weakness in core inflation suggests that rate rises are off the table for some time yet. This is consistent with our view that the RBA will keep rates on hold deep into 2018.’

The figures come from ANZ’s own Inflation Risk Index (IRI), which places only a 60% chance that underlying inflation will meet the RBA’s target rate over the coming twelve months.

Looking ahead the GBP AUD exchange rate may rise on Wednesday if the UK’s latest employment figures unexpectedly shows a decline in the jobless rate, which is currently expected to have held at 4.7% in March.

Meanwhile the Australian Dollar may be softened by the release of the minutes from the latest RBA policy meeting, with a possibly gloomy outlook towards Australia’s housing and labour markets likely to weaken the ‘Aussie’.

Current Interbank Exchange Rates

At the time of writing the GBP AUD exchange rate was trending around 1.7412 and the AUD GBP exchange rate was trending around 0.5741.
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