GBP to AUD Exchange Rate Tumbles from Weekly Highs as UK Growth Revised Lower

February 22, 2018 - Written by John Cameron

STORY LINK GBP to AUD Exchange Rate Tumbles from Weekly Highs as UK Growth Revised Lower

Disappointing UK ecostats weighed heavily on Sterling on Thursday, causing the British Pound to Australian Dollar exchange rate to fall from the highs it saw overnight. Despite a lack of optimistic Australian ecostats in recent sessions, the currency saw stronger demand on Thursday.

After largely fluctuating last week, GBP/AUD could be in for another week of wide fluctuations. GBP/AUD opened the week at the level of 1.7708 and has since touched on a low of 1.7617 and a high of 1.7841. The pair trended near the level of 1.7730 on Thursday.

GBP Plunges as UK Gross Domestic Product (GDP) Projections Disappoint

While the Bank of England (BoE) hinted on Wednesday that the bank may need to up the pace of UK interest rate hikes, analysts are unsure if Britain’s economic outlook will support a more hawkish BoE after all.

Thursday saw the publication of Britain’s second Q4 2017 Gross Domestic Product (GDP) projections, which came in lower than forecast and disappointed investors.

Britain’s quarter-on-quarter growth rate was forecast to have edged higher from 0.4% to 0.5%. While the previous figure was revised higher to 0.5%, the Q4 projection came in at a slower than expected 0.4%.

The year-on-year projection was similar. The figure was forecast to slow to 1.5% but instead declined to 1.4%. The previous figure was revised higher though, from 1.7% to 1.8%.

The data indicated that Britain’s annual growth rate was at its lowest since 2012 and put Britain at the bottom of the G7 in terms of 2017 growth. According to Jacob Deppe from Infinox;

‘The brief flurry of optimism triggered by December’s breakthrough in Brexit negotiations is looking ever more illusory.

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This downward revision to fourth quarter GDP confirms that Britain’s economy ended 2017 with a whimper rather than a bang.

To make matters worse, it’s becoming clear that the slowing momentum experienced at the tail end of last year has dragged into the start of 2018. January’s weak retail sales figures, and the news that factory orders fell to a four-month low, all point towards continued weakness in the UK economy.’

On top of concerning UK growth figures, Thursday saw the publication of Britain’s Q4 business investment projections – which also disappointed markets.

Quarter-on-quarter business investment was predicted to come in at 0.5% but instead printed a stagnant 0.0%. The yearly figure, on the other hand, only improved to 2.1% despite being expected to jump to 2.4%.

AUD Recovers from Lows Thanks to Commodity Price Optimism

Despite Wednesday leading to a rise in Federal Reserve interest rate hike bets and lower risk-sentiment, the Australian Dollar recovered from its weekly lows against majors like the Pound during Thursday’s European session.

According to analysts from Macquarie Bank, the Australian Dollar could avoid seeing major losses due to general market optimism around commodity prices – as the Australian Dollar is a commodity-correlated currency.

The bank stated;

‘The key difference between now and 2000/01 is that the prices of Australia’s resources exports are around 180% higher in USD terms and the terms of trade are up nearly 60%,

Modelling of the fundamental value of the Australian dollar shows that the terms of trade is by far the most important determinant.’

GBP/AUD Forecast: More Fluctuations Could Be Ahead

As UK ecostats have disappointed investors in recent sessions and there are mixed market outlooks on Brexit and the Bank of England’s (BoE) policy outlook, the Pound could continue to fluctuate in the coming days.

Amid a lack of notable upcoming Australian ecostats, the ‘Aussie’ could continue to fluctuate too and be driven largely by risk-sentiment and US Dollar (USD) strength.

As it stands, the Pound to Australian Dollar exchange rate could end the week closer to its opening levels.

If Bank of England policymaker Ramsden mentions the UK growth data in his Friday speech, this could influence Sterling movement.

Otherwise, nothing on the UK economic calendar is likely to be particularly influential until next week’s UK consumer confidence stats and manufacturing results are published.

Similarly, Australian manufacturing PMIs will be published next week too and could influence ‘Aussie’ trade.

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TAGS: Pound Australian Dollar Forecasts