GBP/AUD Exchange Rate Rises 0.4% as UK Wage Growth Accelerates

March 21, 2018 - Written by James Fuller

STORY LINK GBP/AUD Exchange Rate Rises 0.4% as UK Wage Growth Accelerates

On Tuesday’s trading session, the Pound to Australian Dollar exchange rate saw a minimal increase over the course of daily trading.

The GBP/AUD exchange rate opened in the range of 1.8211 on Tuesday morning and despite gains and losses during the day, closed trading marginally higher around 1.8213 in the evening.

The headline news for Pound traders was the revelation that UK inflation had fallen by more than first thought in February.

The base year-on-year reading showed a decline from 3% to 2.7%, while core annual inflation dropped from 2.7% to 2.4%.

Both declines were greater than expected, and led to widespread speculation about what these results meant for future Bank of England (BoE) interest rate decisions.

The overall trader reaction was uncertainty, as it was unclear if the easing strain on UK consumers could also reduce the pressure on the UK central bank to raise interest rates in the near-term.

Commenting on the stats, Samuel Tombs of Pantheon Macroeconomics said;

‘Inflation is falling back to the 2% target much more rapidly than the [BoE] Monetary Policy Committee (MPC) expected.

Advertisement

February’s inflation rate is a clear margin below the committee’s 2.9% forecast.

This decline partly was due to a drop in transport services inflation, as the anniversary of big price rises in response to the rebound in oil prices was reached.

But inflation in labour-intensive sectors, like accommodation services, fell sharply too, indicating that Britain still doesn’t have an underlying inflation problem’.

For context, the BoE’s longstanding inflation rate target is 2%; inflation has been above this level since February 2017.

GBP/AUD Advance Trigger by Narrowing Wages to Inflation Gap

The Pound has gained ground on the Australian Dollar today, thanks to rising wage growth and reports of falling UK unemployment.

In the former case, the pace of average earnings with and without bonuses has increased in January, from 2.5% to 2.6%.

This result was as expected, but a bonus has been a surprise drop in the unemployment rate for January from 4.4% to 4.3%.

The implication is that with a shrinking labour pool, employers are now deciding to increase salaries to attract the desired employees to their businesses.

While most analysts and Pound traders have met the news with optimism, there have still been words of warning from sources like the Resolution Foundation.

The economic think-tank’s Senior Economic Analyst, Stephen Clarke, has responded to the news by saying;

‘Britain’s 12-month pay squeeze has finally ended, though public sector workers will have to wait until new pay settlements are agreed across the NHS, schools, the police and other parts of the public sector.

While it’s a relief that pay packets are no longer shrinking, the outlook for anaemic pay growth remains a huge living standards concern.

Average pay is still lower than it was a decade ago, and an entire generation of young workers are still yet to experience the 3-4% pay rises that were once the norm’.

AUD/GBP Exchange Rate Slides ahead of Forecast Fed Interest Rate Hike

On the other side of the pairing, the Australian Dollar has fallen against the Pound and all other peers bar the New Zealand Dollar today.

The dwindling levels of confidence in the AUD have been caused by concerns that if US interest rates overtake Australian rates in the near-future, Australia may be considered a less economically-desirable country.

Australian interest rates are currently on par with US rates, at 1.5%.

A US interest rate hike is predicted imminently, but the concern is that the Reserve Bank of Australia (RBA) may hold off on increasing rates until late 2018 if not 2019.

Pound to Australian Dollar Exchange Rate Forecast: Risk of GBP/AUD Exchange Rate Losses from BoE Rate Meeting

The Pound to Australian Dollar gains seen recently may be reduced on 22nd March, when the Bank of England (BoE) will hold its monthly monetary policy meeting.

If BoE officials suggest that a UK interest rate hike is a long way off despite recent positive data, the Pound to Australian Dollar exchange rate could decline.

As covered above, the Australian Dollar may fall further against the Pound more immediately when the Federal Reserve announces its interest rate decision this evening.

Fed officials are widely expected to approve higher interest rates, which could boost US Dollar demand and trigger a greater Australian Dollar to Pound slump.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Australian Dollar Forecasts