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Pound Australian Dollar (GBP/AUD) Exchange Rate Tumbles as UK GDP Misses its Mark

May 25, 2018 - Written by John Cameron

UK Q1 GDP Estimate Confirmed Soft – Pound (GBP) Exchange Rates Fall

The Pound Australian Dollar (GBP/AUD) exchange rate weakened on Friday, falling as investors responded to a disappointing Q1 GDP print.

The Office for National Statistics (ONS) confirmed the UK’s economic growth in the first quarter at 1.2% year-on-year, with the group recognising a pattern of slowing growth around consumer-facing industries.

The most notable, however, was a -2.7% slowdown in the UK’s construction sector, though a small contraction in business investment also raised some eyebrows.

Analysts are currently split regarding the extent of influence that the severe storms had during this period, with the ONS downplaying the Beast from the East and the Bank of England (BoE) largely attributing to fall to the weather.

The news is pertinent in that it could push the BoE even further away from hawkish policy measures in the coming months, but investors had largely already priced in a disappointing performance for the first quarter, perhaps negating the influence of this report.

Australian Dollar (AUD) Exchange Rates Prove Resilient – Geopolitical Concerns Ease

The Australian Dollar managed to climb against the Pound Sterling (GBP/AUD) on Friday, despite rather sudden shifts in market risk aversion.

Geo-politically, investors were pleased to hear that North Korea’s response to the US pulling out of the planned June summit was not outright hostile - with another summit still seeming to be on the table, if delayed.

In other news, the US-China trade standoff appears to have massively cooled, with both leaders having sent top officials to hash out a deal over trade, investment and overarching intellectual property rights.

In this regard, the trade row seems to have been shelved indefinitely, with China agreeing to the two key requests:

1. China is to substantially reduce the bilateral trade deficit by expanding the import of US goods and services.

- In exchange, US President Donald Trump has taken his tariff threat off of the table.


2. China is to change technology licensing measures in its foreign trade laws which discriminate against holders of foreign intellectual property rights.

Combined, this news increased risk appetite amongst investors, returning demand to the riskier commodity currencies like the ‘Aussie’ Dollar.

Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: BoE Rate Outlook Explored

The outlook for the Pound Australian Dollar (GBP/AUD) exchange rate could improve in the near-term, though this will be largely dependent on the performance of British data in Q2 and the response from the BoE.

Investors were disappointed by the Q1 GDP result, but yesterday’s rather upbeat UK retail sales report for Q2 seemed to indicate that it was a temporary blip, rather than evidence of an ongoing trend.

More data will be required, however, before this outlook is certain.

If a marked recovery does occur in the second quarter then we could see the BoE become increasingly hawkish, and the Pound gain in strength simultaneously.
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