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GBP AUD Exchange Rates Fluctuate Amid Weakening UK Inflation

November 14, 2017 - Written by John Cameron

The Pound Australian Dollar exchange rate fluctuated today as markets responded to a run of data releases from the United Kingdom and Australia.

GBP Exchange Rates Hurt by Disappointing UK Inflation Prints

Today featured an abundance of UK data releases, the most pertinent being the UK’s consumer price index (CPI) figures for October.

According to the Office for National Statistics (ONS) year-on-year inflation in the UK remained steady at the five-year high of 3% in October, missing the forecast of a 3.1% rise.

This news caught markets off-guard somewhat, with many expecting inflation in the UK to continue rising to a peak in October before slowly descending into 2018.

In one respect, this news reinforces worries that the Bank of England (BoE) perhaps raised interest rates prematurely, with the UK’s economy still limited by uncertainty and staggered by the accompanying slow economic growth.

In another, it removes any remaining doubts that the BoE will move hawkishly in the first half of 2018, with inflation weakening faster than expected liable to keep the bank away from a cycle of rate hikes for longer than originally anticipated.

Chris Williamson, UK Economist at IHS/Markit asserted that the worst of rising consumer prices has now passed, stating:

‘The recent surge in price pressures is primarily due to the depreciation of the Sterling since last year’s EU referendum, which has increased the cost of imported goods and services, but today’s numbers will add to the sense that the worst of this impact has already passed. Data on company costs, which tend to change ahead of changes in consumer prices, are already showing signs of having peaked earlier in the year’.

Nonetheless, this news hurt an already vulnerable Pound, with markets currently digesting the latest political scandal that UK Prime Minister Theresa May could face a potential vote of no confidence.

AUD Exchange Rates Fluctuate on Mixed Data

The ‘Aussie’ Dollar fluctuated today, dragged down by reduced demand for high-risk assets but buoyed by a modest jump in business confidence.

Australia’s NAB business confidence index, a survey of the current state of Australia’s business sector, inched up to 8 in October, beating the previous month’s print of 7 and marking the highest business confidence figure in three months.

Alan Oster, NAB Chief Economist commented on the readings, stating:

‘Overall, results from the survey indicate that the business sector in Australia is very strong at present, which is having positive spill-overs from the labour market and investment’.

The NAB business conditions survey, on the other hand, rose from 14 to 21 in October.

Despite the positive performance of these data prints markets remain hesitant to buy too far into the ‘Aussie’ Dollar, with many turned-off by assurances from the Reserve Bank of Australia (RBA) that interest rate hikes will not occur for some time.

Volatility Ahead for GBP AUD on Release of Employment Data

The GBP AUD exchange rate could become increasingly volatile tomorrow, depending on the market reaction to a variety of employment figures for both the UK and Australia.

Australia’s wage price index figures are currently expected to rise Q3 year-on-year to 2.2%, up from the previous period’s 1.9% rise.

The quarter-on-quarter figure is also expected to prove positive, rising from 0.5% to 0.7%.

Markets will also be keeping an eye on RBA Luci Ellis at his speech tomorrow, with any hawkish intonation liable to bolster AUD and a dovish reiteration of the RBA’s latest statement liable to curb demand.

In the UK, data for average weekly earnings, jobless claims and the unemployment rate will be released, with unemployment expected to remain at historic lows of 4.3%.

Average weekly earnings, however, are expected to drop slightly from 2.2% to 2.1%.

If the data proves disappointing then the strength of the UK’s economy will be further brought to question. Conversely, positive readings could tip things back into the Pound’s favour.

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