Pound Australian Dollar Exchange Rate News: GBP/AUD Falls as CPI Prints Higher-Than-Expected

March 23, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Falls as CPI Prints Higher-Than-Expected

GBP/AUD Stumbles after UK CPI Reading Prints Higher-Than-Expected

The Pound Australian Dollar (GBP/AUD) exchange rate is falling this morning as the UK’s consumer price index exceeded expectations, amplifying concerns over the cost-of-living crisis.

At the time of writing, the GBP/AUD exchange rate is trading at approximately AU$1.7685, roughly down 0.5% from today’s opening levels.

Pound (GBP) Drops as Soaring UK Inflation Gives Rise to Cost-of-Living Concerns

The Pound (GBP) is subdued against the Australian Dollar (AUD) following a higher-than-expected CPI reading.

UK inflation soared to a new 30-year high in February, jumping from 5.5% to 6.2%. This beat market forecasts inflation would only rise as high as 5.9%, whilst also striking a new 30-year high.

This is stoking concern over the UK’s cost-of-living crisis. While this would normally be offset by Bank of England (BoE) rate hike bets, these remain suppressed in light of the bank’s dovish forward guidance following its March policy meeting last week.

As rising energy prices and food costs continue to strain incomes, the largest price increases came from transport, furniture and household equipment, and clothing and footwear.

Grant Fitzner, chief economist at the Office for National Statistics:

‘Inflation rose steeply in February as prices increased for a wide range of goods and services, for products as diverse as food to toys and games.

‘The price of goods leaving UK factories has also been rising substantially and is now at its highest rate for 14 years.’

Later today, the UK Chancellor Rishi Sunak will publish the spring budget.

Sunak has vowed to ‘stand by’ hard-working families as the cost-of-living crisis continues to stretch incomes across the UK.

Many MP’s – both Conservative and opposition – have requested Sunak postpone the planned National Insurance hike and are calling for a fuel duty cut in response to the record-high fuel prices.

According to Mel Stride, Chair of the cross-party Treasury select committee, ‘recent reports show that the public finances are in a stronger position than anticipated, and the chancellor should use this additional fiscal firepower to bring forward support for those on the lowest incomes.’

This may limit Sterling’s losses this afternoon.

Australian Dollar (AUD) Surges amidst Risk-On Sentiment

The Australian Dollar (AUD) is gaining ground against the Pound (GBP) today amid a risk-on market mood.

The improved risk appetite comes after nine humanitarian corridors are expected to open across Ukraine today, allowing Ukrainian citizens to escape the fighting.

However, Iryna Vereshchuk, Deputy Prime Minister of Ukraine, has confirmed that Russia has yet to establish a safe corridor from Mariupol; Russian military has transformed the city into the ‘ashes of a dead land’.

Volomydyr Zelenskiy has confirmed Russia-Ukraine negotiations are ‘moving forward’ despite being ‘very difficult, sometimes confrontational’. This is further supporting the risk-sensitive AUD.

Moreover, US President, Joe Biden, is travelling to Brussels today to discuss additional sanctions that can be imposed onto Russia.

A White House spokesperson said:

‘No final decisions have been made about who we will sanction and how many we will sanction.

‘We will have additional sanctions measures to announce that will be rolled out in conjunction with our allies on Thursday when the President has the opportunity to speak with them.’

GBP/AUD Exchange Rate Forecast: Will Peace Talks Maintain Risk Appetite?

Looking ahead, peace talks between Russia and Ukraine may preserve today’s risk-on sentiment, bolstering the risk-sensitive ‘Aussie’.

The publication of the UK’s latest PMI figures could act as a headwind for the Pound tomorrow.

March’s preliminary figures are expected to report a slowdown in private sector growth as the war in Ukraine started to impact economic activity in the UK.

Similarly, at the beginning of the coming overnight session, the Australian Dollar may be boosted by manufacturing and services PMI flash figures: expected to decrease from 58 to 56.7 and 60.5 to 58, respectively.

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