Pound to Australian Dollar Exchange Rate Rangebound as UK Inflation Rises in December

January 20, 2021 - Written by John Cameron

STORY LINK Pound to Australian Dollar Exchange Rate Rangebound as UK Inflation Rises in December

GBP to AUD Exchange Rate Steady as UK Shoppers Returned to High Streets in December

The Pound to Australian Dollar exchange rate held steady today. The pairing is currently fluctuating around AU$1.76.

Sterling rose against AUD today following the release of the latest UK inflation data for December, which jumped as shoppers returned to the high streets last month.

The UK’s CPI data for December beat forecasts and rose by 0.6% year-on-year.

Thomas Pugh, an economist at Capital Economics, predicted that inflation could rise by the end of this year, saying:

‘Inflation will probably start to rise more sharply from April when the temporary VAT cut for the hospitality sector is reversed and the recent rises in agricultural and energy commodities start to make themselves felt.

‘Together these forces could lift inflation to more than 2% by the end of the year. But ample spare capacity means it will probably settle at close to 1.5% by the end of next year.

Further ahead, inflation may creep higher if the authorities keep monetary and fiscal policy loose after all the spare capacity in the economy has been absorbed.’

However, UK markets fear post-Brexit disruption to have a negative impact on the British economy, which las left some GBP investors feeling jittery.

Nonetheless, the Government’s extensive rollout of the Covid-19 vaccine has supported optimism in Britain’s economic recovery in the months ahead.

Australian Dollar Steady as Risk Sentiment Improves ahead of US Presidential Inauguration

The Australian Dollar has benefited from an improvement in risk sentiment ahead of the US Presidential Inauguration of President-elect Joe Biden.

Markets are reacting positively to the inauguration, with hopes that the Biden Administration will announce huge Covid-19 stimulus programmes to help recover the American economy.

As a result, demand for the risk-sensitive ‘Aussie’ has risen this week.

AUD traders are also becoming more confident in China’s economy, which has shown signs of robust growth following the initial phases of the Covid-19 pandemic.

With China being Australia’s largest trading partner, this has buoyed appetite for the ‘Aussie’.

Sean Langcake, the senior economist at Oxford Economics, commented:

‘China's impressive industrial recovery has stoked demand for steel production, and Australia is a major supplier of steel making inputs to China.’

GBP/AUD Outlook: Could Falling Australian Unemployment Boost the ‘Aussie’?

Australian Dollar traders will be awaiting tomorrow’s release of December’s Australian Unemployment Rate report.

If this confirms consensus and shows an improvement in Australia’s labour sector, then we will see the ‘Aussie’ rise.

Demand for the risk-sensitive AUD will also rise following the US Presidential Inauguration, as stability in US political matters will boost demand for riskier assets.

Meanwhile, Sterling traders will be eyeing the UK’s Covid developments.

If these continue to improve – with vaccine rollouts increasing and infection rates dropping – then we could see the GBP/AUD exchange rate head higher.

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TAGS: Australian Dollar Forecasts Pound Australian Dollar Forecasts