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Pound Australian Dollar Exchange Rate Rangebound amid Worsening UK Outlook

April 22, 2022 - Written by John Cameron

Pound Australian Dollar (GBP/AUD) Exchange Rate Trades Narrowly amid Poor UK Data

The Pound Australian Dollar (GBP/AUD) exchange rate is trading narrowly after weak UK consumer confidence and retail sales figures. The Pound (GBP) is also remaining weak after PMI figures indicated a slowdown to private sector growth. The Australian Dollar (AUD) is also struggling today amid concerns of China’s steel output.

At time of writing the GBP/AUD exchange rate is at around $1.7694, virtually unchanged from this morning's figures.

Pound (GBP) Tumbles as Cost-Of-Living Crisis Dampens Consumer Confidence

The Pound (GBP) is losing significant ground against its rivals today following multiple weaker than expected data releases. A cautious outlook from the Bank of England (BoE) as well as domestic political headwinds may also be weighing on Sterling.

An above-forecast fall to UK consumer confidence figures is one of the data releases pulling Sterling lower today. The index fell to -38, versus forecasts of -31, and is the lowest level since the financial crisis of 2008. Soaring energy costs and record-high inflation have meant that confidence is in freefall, with analysts citing the figures as early signs of significant shifts in the country’s economy.

Kallum Pickering, senior economist at Berenberg Bank, said:

With an unusually uncertain near-term outlook, this is not easy to answer. At a minimum, the data suggest investors should be prepared for a bad outcome.’

Pickering’s analysis also touches upon the difficult situation the Bank of England (BoE) finds itself in. The figures today have led to expectations of a continued cautious approach from the central bank which has reduced bets on GBP. Analysts are concerned that too aggressive an approach could lead to an early recession for the UK.

Retail sales for March also fell by more-than-expected today to drag the Pound lower. Consumers are thought to have reigned in their spending amid the country’s cost-of-living crisis. Rising food prices have continued to hurt retail sales.

A drop to private sector growth in April could also be weighing on the Pound today. PMI figures grew slower-than-expected as firms noted economic uncertainty surrounding the war in Ukraine had impacted demand.

Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said:

April’s PMI figures add to evidence that the sharp decline in households’ real disposable income is starting to put the brakes on the economic recovery.’

Australian Dollar (AUD) Slips amid Iron Ore Demand Concerns

Concerns over iron ore demand are weighing upon the Australian Dollar (AUD) today as well as downtick in commodity prices. Major losses for the ‘Aussie’ may be limited by an uptick to April’s PMIs however.

The fluctuating price of iron ore is keeping AUD suppressed today. Whilst pledges from the Chinese government of additional economic stimulus have bolstered the commodity, reports that China is looking to cut back its steel production have pushed iron prices lower overall.

Continued lockdowns across China are also hampered demand for the ‘Aussie’. Chinese authorities have warned residents of Shanghai that the city would remain in lockdown until the virus was eliminated neighbourhood by neighbourhood.

A rise to private sector output may help prevent any drastic falls in the Australian Dollar however. The country’s private sector expanded for the third consecutive month in April, largely boosted by a sharp rise in service sector growth. The easing of Covid-19 related restrictions helped the sector to recover.

GBP/AUD Exchange Rate Forecast: Will Bailey Remain Dovish?

Looking ahead for Sterling, a speech from BoE Governor Andrew Bailey on Friday could prompt movement in the currency. Investors had been hoping from a hawkish turn, but today’s figures are likely to mean that Bailey echoes the central bank’s dovish tone. This could push GBP lower.

With no further significant data this week for the Australian Dollar, the currency is likely to continue to be affected by fluctuations in the price of iron ore and developments over China’s Covid lockdowns.

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