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GBP/AUD Sinks Even as UK Wage Uptick Boosts Pound Elsewhere

December 13, 2017 - Written by Toni Johnson

The Pound Sterling to Australian Dollar exchange rate continues to decline today, despite strength for GBP elsewhere.

The GBP/AUD exchange rate is down 0.3% to 1.7577 as the Australian Dollar rises on the back of strong consumer confidence figures and weak demand for the safe-haven US Dollar.

GBP Falls even as UK Wage Growth Uptick Lessens Fears over Recent Inflation Rise

A mixed outlook on the UK’s labour market has enabled to Pound to rise against many of its peers today, but Sterling continues to weaken versus the Australian Dollar.

After yesterday’s surprise uptick in consumer prices from 3% year-on-year to 3.1%, today’s wage growth figures helped soften fears over consumer spending after showing an above-forecast rise in average weekly earnings.

Wages excluding bonuses grew 2.3% in the three months on the year to October, compared to forecasts of a hold at 2.2%.

While average weekly earnings grew 2.5% as forecast overall, the previous growth was revised up to 2.3%.

This will soften the impact of surging price growth, with ONS statistician Matt Hughes explaining;

‘There has been a slight pick-up in pay growth in cash terms, which means that although earnings are still growing less than inflation, the gap has narrowed.’

Meanwhile the overall employment rate has fallen again for the second three-month period in a row.

According to Professor of Economics at Lancaster University Management School, Geraint Johnes;

‘The latest labour force statistics provide further evidence that the labour market has peaked and is now starting to turn down. Employment fell by some 56000 over the quarter to October. While there was a small increase in the number of full-time employees, there was a large fall (some 65000) in the number of full-time self-employed workers. Unemployment, meanwhile, continued to fall, and now stands at 4.3%.’

Rising Consumer Confidence Helps to Push AUD Higher

Strong consumer confidence figures for December have helped boost the Australian Dollar today, in the hopes that households will have spent big during the festive period and added to inflationary pressures.

A 3.6% rise in the Westpac consumer confidence index took the measure up from 99.7 to 103.3.

Westpac Chief Economist Bill Evans explained;

‘This is a surprisingly strong result and confirms the lift we have seen in the Index over the last three months. The average reading for the Index in the December quarter is 5% above the average for the September quarter when we saw a disturbing slump in consumer spending. This result is supportive of the view that consumer confidence may have bottomed out during that September quarter.’

‘In turn, growth in consumer spending is likely to have also bottomed out in the September quarter.’

Following the mantra of ‘no news is good news’, markets were also relieved that a recent speech by Reserve Bank of Australia (RBA) Governor Philip Lowe contained no references to monetary policy, instead focussing on the risks of Bitcoin and digital currencies in general.

The RBA have recently sounded rather cautious on the outlook for monetary policy so, while Lowe may not have offered anything positive, he at least didn’t say anything that could add downside pressure to AUD.

Rising risk appetite is also a result of market reluctance to buy into the US Dollar or Euro ahead of tonight’s monetary policy announcements from the Federal Open Market Committee (FOMC).

Will US Interest Rate Decision Weaken GBP Against AUD before BoE Announcement Tomorrow?

Markets are now holding their breath ahead of the latest US Federal Reserve monetary policy decisions, which could significantly affect demand for safe-haven and high-risk currencies.

Markets are expecting a 0.25% interest rate hike, but are uncertain as to whether the Fed will signal that any more rounds of tightening are set to follow in 2018.

Anything other than a ‘hawkish hike’ could therefore see the Australian Dollar boosted by a falling US Dollar, meaning the GBP/AUD exchange rate would slump even lower.

Tomorrow will be a volatile day – and not just because the currency markets will be reacting to the latest Fed announcements.

Australia’s November employment data is set for release and forecast to show an uptick in the pace of new job creation on the previous month.

Although UK retail sales figures are due shortly after trading begins, these could be overlooked given that the Bank of England (BoE) will announce its final monetary policy decisions of 2017 at midday.
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