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Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Left Flat as UK Inflation Falls to Three-Year Low

September 18, 2019 - Written by John Cameron

Pound Australian Dollar (GBP/AUD) Exchange Rate Muted as Inflation Eases to Three-Year Low

The Pound Sterling Australian Dollar (GBP/AUD) exchange rate was left muted and the pairing is currently trading at around AU$1.8207.

UK consumer prices rose by 1.7% in August, far below the Bank of England’s (BoE) 2% annual target.

This is the lowest level of inflation since 2016, driven down by the price of both clothing and computer games.

Sterling was left under pressure on Wednesday morning as further data revealed core inflation slowed to 1.5%.

Meanwhile, the data suggests the BoE will leave rates unchanged on Thursday due to the lack of inflation pressures.

Sterling (GBP) Flat Ahead of Second Day in UK Supreme Court

Meanwhile, the fight over whether Boris Johnson’s move to suspend parliament for five weeks was legal continues on Wednesday.

Critics have argued the Prime Minister was trying to stop MPs from ‘frustrating or damaging’ his Brexit plans.

On Tuesday Lord Pannick noted that he had no issue with Johnson’s right to prorogue parliament in order to present a Queen’s speech.

However, he stated the ‘exceptional length’ of this suspension was ‘strong evidence the Prime Minister’s motive was to silence parliament because he sees parliament as an obstacle’.

He also added:

‘For the executive to use a prerogative power to seek to evade control by parliament stands the basic principles of constitutional law on their head.’

Australian Dollar (AUD) Muted as RBA Hints at Further Easing

The ‘Aussie’ was left under pressure on Tuesday as Australia’s central bank left the door open to further interest rate cuts.

The Reserve Bank of Australia's (RBA) minutes from its 3 September meeting showed policymakers would consider further easing measures.

Further measures may be needed to support growth and ensure the bank’s 2% to 3% inflation target is met.

Meanwhile, AUD slumped as markets priced in a further rate cut by the end of 2019, with another by early 2020.

Westpac analyst, Bill Evans noted:

‘The minutes make a fairly clear case for another rate cut in 2019.

‘With two meetings now having passed since the last move and, from my perspective, most importantly, the key rate cut theme that ‘the Australian economy could sustain lower rates of unemployment and underemployment’ returning to the narrative, out central view that there is no reason to wait until November for the next move still seems reasonable.

November is typically favoured by the RBA since it is a time when it can refresh its forecasts although we are not expecting any significant changes along the lines of August when the forecast unemployment rate was lifted; the forecast pace of wages growth was lowered; and the timing of the return of inflation to the 2-3% band was pushed out by a year. The growth forecast in 2019 is likely to be lowered by the 2020 forecast should remain intact.’

Pound Australian Dollar Outlook: Will AUD Slide as the Fed Slashes Rates?

Looking ahead to this evening, it is likely the risk-sensitive Australian Dollar (AUD) could slide further against Sterling (GBP) following the Federal Reserve’s interest rate decision.

If the Fed slashes rates for the second time this year, it is likely the ‘Aussie’ will be left under pressure as risk-appetite slides.

Meanwhile, disappointing Australian unemployment data could cause the Australian Dollar to fall further at the start of Thursday’s session.

If unemployment edges up further than expected in August, the Pound Australian Dollar (GBP/AUD) exchange rate is likely to rise.

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