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Pound Australian Dollar Exchange Rate News: GBP/AUD Softens amid Global Recession Fears

June 20, 2022 - Written by John Cameron

Pound (GBP) Slips as Mounting Inflationary Pressures Stoke Recession Fears

The Pound (GBP) dipped against the Australian Dollar (AUD) this morning as markets are increasingly unnerved by the prospect of a global recession. With the stock markets posting their biggest percentage decline in over two years, investors are concerned that central banks are likely to push the global economy into a recession.

Hebe Chen, Market Analyst at IG, outlines the souring economic data and soaring prices all point to a recession:

‘The market last week just painted a typical recession picture that ticked almost all the boxes: inflation is flying to the roof, interest rates are non-stop rising, two major US stock indices [S&P 500 and Nasdaq] are trapped in the bear market (with the 3rd one on the way) and investors are selling shares of the best companies. Last but not least, commodity prices start to drop.’

However, the UK’s Junior Treasury Minister Simon Clarke said today that a UK recession is not to be expected, and that in actual fact, the UK economy has a ‘really positive’ long-term outlook, although GBP investors appear unconvinced.

The threat of a recession could also weaken resolve in the Bank of England (BoE) to pursue a more aggressive approach to raising interest rates, this could provide further headwinds for the Pound.

Elsewhere, Brexit troubles continue to persist, with ex-Northern Ireland secretary Peter Hain accusing Prime Minister Boris Johnson of acting ‘Putinesque’ over the Northern Ireland protocol dispute. Johnson appears reluctant to meet the EU halfway over the issue and is adamant in unilaterally altering the Brexit agreement.

Hain claims that rather than being open to negotiating, Johnson is using the protocol dispute to cause a populist row with the EU:

‘Instead, focus upon its real purpose: dog-whistling to Johnson’s base by triggering a humongous row with the old villain Brussels because that worked so well in the 2016 Brexit referendum. And keep that going – if at all possible – all the way to the next general election.’

Until a solution is met, a potential trade war with the EU looms ever closer, fears of which are weighing on the Pound.

Australian Dollar (AUD) Ticks Upwards as PBOC Maintains Accommodative Monetary Policy

The Australian Dollar (AUD) strengthened overnight as the People’s Bank of China (PBOC) left its monetary policy unchanged, a contrast from the hawkish stance employed by Western banks.

It’s hoped that the PBOC’s accommodative approach to monetary policy will help China bounce back from its recent lockdowns and help limit the chances of the country slipping into a recession.

With Australia being a major trade partner with China, the ‘Aussie’ is buoyed by the accommodative policy stance as demand for goods and services from Australia are likely to remain relatively strong.

Meanwhile, China’s zero Covid policy continues to weigh on the global economy, and in turn the Australian Dollar as many Chinese cities are still under lockdown amid mass testing. With businesses and schools having to close, manufacturers are struggling to meet demand.

As China continues its strategy of wiping out Covid no matter the cost, the Australian Dollar is likely to be affected as a proxy currency to China. Any further negativity to emerge from the world’s second largest economy could weigh on the ‘Aussie’ further.

GBP/AUD Exchange Rate Forecast: Hawkish BoE Speeches to Boost the Pound?

Looking ahead, speeches from BoE MPC members Haskel and Mann are scheduled for today. With both members having voted for a larger bank rate increase last week, an increased hawkish tone could inspire confidence in investors, potentially buoying the Pound.

Elsewhere, a speech from RBA Governor Philip Lowe and the release of the June policy meeting minutes could inspire movement for the Australian Dollar.

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