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Pound Australian Dollar Exchange Rate News: GBP/AUD Softens amid Weakening Economic Outlook

July 4, 2022 - Written by John Cameron

Pound (GBP) Weakens amid Darkening Economic Outlook

The Pound (GBP) is slipping against most of its rivals today as a lack of data has left Sterling vulnerable to the souring market sentiment. Fears over a sharper than desired slowdown in economic growth has worried investors.

Domestically, multiple headwinds are piling more pressure on the Pound this morning. The cost-of-living crisis is worsening as the British Chamber of Commerce (BCC) has released its Quarterly Economic Survey, revealing a record number of UK businesses are expected to increase prices further within the next three months.

Inflationary pressures are mounting, and firms are looking to pass them onto consumers with two-thirds of UK businesses expecting their prices to rise in the next three months. David Bharier, head of research at the BCC, said:

‘This quarter’s survey results clearly point to a weakening economic outlook amid unprecedented cost pressures and falling business confidence.

‘Businesses face an unprecedented convergence of cost pressures, with the main drivers coming from raw materials, fuel, utilities, taxes, and labour.

‘The continuing supply chain crisis, exacerbated by conflict in Ukraine and lockdowns in China, has further compounded this.’

Elsewhere, a rare joint statement between Germany and Ireland has denounced Boris Johnson’s plans to scrap the Northern Ireland protocol. Claiming that there was no political or legal justification for unilaterally altering the Brexit agreement, both countries have joined a rising number of opposition voices, including 70 of Johnson’s own government.

German foreign minister Annalena Baerbock and her Irish equivalent Simon Coveney wrote in the Observer and suggested that Johnson risk undermining the ‘rules-based international order’ in scrapping the protocol after only two years of signing it. Baerbock and Coveny said:

‘Unfortunately, the British government chose not to engage in good faith with these proposals. Instead of the path of partnership and dialogue, the British government has chosen unilateralism.’

With the potential for a trade war breaking out between the UK and the EU, the Pound will continue to be under increased pressure going forward.

Australian Dollar (AUD) Wavers as Investors Brace for RBA Decision

The Australian Dollar (AUD) is fluctuating today as concerning news out of China weigh on sentiment as investors await the Reserve Bank of Australia (RBA) interest rate decision tomorrow, with many expecting a 50bps rise.

The continued hawkish stance from the RBA has continue to bolster the ‘Aussie’ and fully supports the likelihood of a third successive rate hike.

However, weighing on the ‘Aussie’ today is the news out of China of the surge of new Covid infections across several provinces near Shanghai, causing further lockdowns. If the cases continue to spike, fears of a wider lockdown will concern investors once again. With Australia being a leading exporter to China, any slowdown to economic activity will have a knock-on effect.

This comes after the positive manufacturing data out of China, with the Caixin manufacturing PMI printing higher than expected. With an expected expansion of 50.1, the manufacturing sector saw a much improved 51.7 as the world’s second largest economy continues to recover after the strict Covid lockdowns.

GBP/AUD Exchange Rate Forecast: RBA Rate Rise to Bolster the Aussie?

All eyes will be on the RBA’s interest rate decision tomorrow as market expectations of a third successive rate rise could inspire further movement for the ‘Aussie’.

Meanwhile, with data thin on the ground for the rest of the day, tomorrow sees the final readings for the UK’s services sector. With the PMI set to be confirmed at 53.4, above market expectations.

Elsewhere, Bank of England (BoE) Governor Andrew Bailey will be making a speech following the release of the financial stability report. A continued dovish tone could weigh on the Pound amid the gloomy economic outlook.

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