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Pound Australian Dollar Exchange Rate News: GBP/AUD Rangebound as UK Inflation Soars

January 19, 2022 - Written by John Cameron

GBP/AUD Mixed as UK Inflation Reaches New Heights

The Pound Australian Dollar (GBP/AUD) exchange rate is muted in the beginning of today’s session as UK inflation exceeds market forecasts.

At the time of writing, the GBP/AUD exchange rate is trading at approximately AU$1.8896, with minimal market movement from today’s opening levels.

Pound (GBP) Rangebound as UK Inflation Hits 30-Year High

The Pound (GBP) is trading in a narrow range against the Australian Dollar (AUD) at the beginning of today’s session as UK inflation rates beat predictions.

In December 2021, the UK’s inflation reached 5.4%, printing higher than both November’s 5.1% and the expected 5.2%.

This is the highest inflation reading recorded since 1992, and is mainly due to surging input costs.

The largest contributors were food and non-alcoholic beverages which increased from 4.2% from 2.5%, restaurants and hotels, though this sector decreased from 6.2% to 6%, furniture and household goods at 7.3%, and clothing and footwear at 4.2%.

Meanwhile, the cost of transport, and recreation and culture both showed a slowdown in growth, printing at 11.9% and 3%, respectively.

Overall, consumer prices increased by 0.5% on a month-by-month basis, having already risen by 0.7% in November.

Debapratim De, senior economist at Deloitte, said:

‘Inflation hit its highest level in 30 years in December. But unlike in the early 1990s, this inflationary streak is largely driven by surging commodities and goods prices - a consequence of pandemic-related shifts in demand and supply.’

The surge in inflation is further bolstering the odds of the Bank of England (BoE)’s raising interest rates when it next meets in February, although concerns over the UK’s impending cost-of-living crisis appears to be limiting the upside potential of the Pound this morning.

James Smith, developed markets economist at ING, said:

‘Inflation has surprised higher (again) and that’s only likely to increase the temptation for Bank of England policymakers to hike rates for a second consecutive meeting this February.

But with inflation rates set to plunge in 2023, and the prospects of a severe wage-price spiral looking less likely, subsequent moves are likely to be more gradual.’

Australian Dollar (AUD) Muted as Coronavirus Infections Surge

Meanwhile, the Australian Dollar is trading flat against the Pound as coronavirus continues to sweep across the nation.

Australia has reported a further 67 coronavirus-related deaths, with almost half of those in New South Wales.

At present, New South Wales has 2863 positive cases in hospital, with 217 people in ICU and 66 on ventilators.

In attempt to combat the number of deaths and ease the strain on hospitals, states such as New South Wales and Victoria are planning on reducing the time between booster shots to just 3 months.

NSW premier, Dominic Perrotte, is asking all those who are eligible to book their boosters immediately, reminding the public that it is a ‘key’ method to ensure they ‘stay safe during this pandemic’.

Despite this, Scott Morrison, the Australian Prime Minister, remains optimistic, stating:

‘When it comes to even the large number of more than 350 deaths in the course of the past week, our death rate that relates to Omicron is one of the lowest in the world.’

This is firming the ‘Aussie’ as investors are cautious of the riskier-asset.

GBP/AUD Exchange Rate Forecast: Will BoE Rate Hike Bets Boost GBP?

Looking ahead, the Pound Australian Dollar (GBP/AUD) exchange rate may be underpinned by BoE rate hike bets through the second half of the week.

Sterling is likely to be influenced by a speech from BoE Governor, Andrew Bailey, this afternoon, particularly if he comments on how the surge in inflation might impact the bank’s monetary policy outlook for 2022.

Later in the week, Sterling may also be impacted by December’s retail sales figures which are forecast to show sales growth slipped from 1.4% to -0.6%.

In addition, the political jitters surrounding the UK’s Prime Minister, Boris Johnson, continue to weigh on GBP’s appeal as report suggest multiple Tory MPs have already submitted letters of no confidence to the 1922 Committee.

On the other hand, the ‘Aussie’ may be influenced by employment data scheduled for release on Thursday.

December’s unemployment rate is forecast to decrease from 4.6% to 4.5%, which, if confirmed could boost AUD’s potential.

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