Pound Australian Dollar (GBP/AUD) Exchange Rate Drops after UK Wage Growth Slows

June 12, 2018 - Written by Ben Hughes

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Drops after UK Wage Growth Slows

On Monday, the Pound to Australian Dollar exchange rate opened around 1.7643 and closed lower in the region of 1.7585.

This decline in the Pound’s performance was down to a cluster of poor UK data releases which covered manufacturing, construction and industrial sector output.

Levels of productivity fell in April across a range of fields, resulting in negative readings or slower reported growth.

The ecostats disappointed Pound traders and economists alike; summing up the poor printings, Guardian Economics Editor Larry Elliot said:

‘The manufacturing figures from the Office for National Statistics are troubling for three reasons.

‘First, surveys had suggested a much better performance. Second, the 0.5% drop in production in the three months ending in April makes forecasts of a strong bounce-back from tepid growth in early 2018 look premature.

'Third, even if signs are correct that consumer spending is picking up because of falling inflation, the UK will have reverted to its old pattern of growth after a short interlude in which activity was better balanced.’

Today’s GBP/AUD Exchange Rate Losses Triggered by Surprise UK Wage Growth Slowdown

The Pound’s (GBP) difficulties have continued today, with poor domestic data dragging Sterling down against the Australian Dollar (AUD).

The latest bad news about the UK economy has concerned the pace of wage growth, which unexpectedly slowed in April.

Analysts had been forecasting no change or even an acceleration for the wage growth readings, so this was a highly disappointing result.

Perhaps the most concerning aspect of the data was that the number of unemployed persons fell and seemingly had little effect on wage growth.

It has previously been assumed that lower unemployment will force employers to boost salaries, but this wasn't seen in the latest results.

The assumption now is that the Bank of England (BoE) won’t be raising interest rates in June, but economists aren’t ruling out an August rate hike.

AUD/GBP Exchange Rate Rises before Potential Australian Dollar Crash on Fed Meeting

The Australian Dollar (AUD) has made a minor rise against the Pound (GBP) today, although this is primarily because of higher risk sentiment among currency traders.

The AUD has appreciated because of signs that North Korea could open up to the world stage, which reduces present tensions in East Asia.

Although the meeting between US President Donald Trump and North Korean leader Kim Jong-un has drawn scepticism from some, it may have contributed to greater optimism among AUD traders today.

Looking ahead, the Australian Dollar is at risk of falling sharply against the Pound (GBP) if the US Federal Reserve decides to raise interest rates on Wednesday evening.

GBP/AUD Forecast: Will Pound to Australian Dollar Exchange Rate Rise on Higher UK Inflation?

The Pound (GBP) might be able to advance against the Australian Dollar (AUD) on Wednesday morning, depending on trader reactions to May’s inflation rate data.

Month-on-month inflation growth is expected to continue at a pace of 0.4%, but a year-on-year increase from 2.4% to 2.5% is also forecast.

Such a rise would put inflation in May at the same pace as wage growth (including bonuses) in April, a fact that could unsettle Pound traders.

Higher inflation puts more pressure on the Bank of England (BoE) to consider raising interest rates, so might trigger a GBP/AUD exchange rate rise.

On the other hand, however, if Pound Sterling traders focus more on the limited wage growth then they might worry that earnings will continue to slow, resulting in wage squeeze conditions once again.

UK high street companies have run into difficulty in recent months, so reduced real incomes might mean less discretionary spending and more turbulence in the retail sector.

If traders reach such a conclusion then the Pound could instead slide in value against the Australian Dollar and other currency peers.

Australian Dollar traders will be looking out for Wednesday morning’s Westpac consumer confidence index for June, as well as a later speech from Reserve Bank of Australia (RBA) Governor Philip Lowe.

In the former case, the confidence reading could prove supportive if it shows an as-expected rise in sentiment levels.

Mr Lowe’s remarks could also boost the Australian Dollar to Pound (AUD/GBP) exchange rate if he gives an optimistic economic forecast.

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TAGS: Pound Australian Dollar Forecasts