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Pound Australian Dollar Exchange Rate News: GBP/AUD Slumps as Gloomy Economic Outlook Compounded by Ongoing Political Uncertainty

July 12, 2022 - Written by John Cameron

Pound (GBP) Slides amid Renewed Economic Pressures

The Pound (GBP) is under increased pressure as inflationary pressures continue to squeeze the economy as retail sales continue to fall at a rate not seen since the height of the pandemic.

The British Retail Consortium (BRC) released its survey that showed British shoppers have cut back on spending for the third consecutive month, as retail sales dropped the most since the pandemic. Helen Dickinson, BRC Chief Executive, said that even though the Jubilee weekend celebrations boosted food sales, it wasn’t enough to counter the considerable drop in consumer spending. She added:

‘Retailers are caught between significant rising costs in their supply chains and protecting their customers from price rises. The government needs to get creative and find ways to help relieve some of this cost pressure.’

Elsewhere, the political uncertainty heats up as the Labour party have announced they intend to call a no-confidence vote in a last-ditch attempt to remove Boris Johnson. Since announcing his resignation, Johnson remains adamant in remaining in office until a new leader is elected. Drawing criticism from both his own party and opposition, a no-confidence motion is set for Wednesday.

James Murray, Labour’s shadow financial secretary to the Treasury, has said:

‘Boris Johnson should go now. And we hope that the Conservative MPs agree with us on that. I think the whole country realises Boris Johnson just has no integrity and honesty. I think it’s time for him to go.’

With the Conservative party announcing that the new party leader will not be announced until September, the ongoing political circus is likely to weigh on the Pound. Candidates for the vacant PM seat have since announced varying and competing tax plans, as well as staunch pro-Brexit stances. Experts are concerned that those standing for drastic tax cuts could exacerbate inflationary pressures.

Australian Dollar (AUD) Under Pressure amid Risk-Off Mood

The Australian Dollar (AUD) is encountering several headwinds today as global recession fears continue to mount.

Commodity prices are tumbling today as the worsening global economic outlook continue to weigh on the markets. Iron ore, one of Australia’s primary exports, is experienced a drop in demand on the back of recession fears. The subsequent drop in price could weigh further on the Australia Dollar today.

Also piling pressure on market sentiment, and the risk-sensitive ‘Aussie’, is news out of China. Rising Covid cases are threatening to stall the world’s second largest economy again as the new Omicron BA4 and BA5 sub-variant spreads. With the city of Wugang in the Henan Province now under lockdown, investors are fearing Shanghai to soon follow suit with a number of cases reported.

GBP/AUD Exchange Rate Forecast: Dovish BoE to Further Dampen the Pound?

Looking ahead, data remains thin on the ground for the rest of the day, so a speech from Bank of England (BoE) Governor Andrew Bailey could inspire movement for the Pound Australian Dollar exchange rate. The recent dovish rhetoric from the central bank could weigh on Sterling as inflationary pressures threaten to trigger a recession.

Elsewhere, tomorrow sees the release of UK GDP figures. With an expected stagnation, concerns of the faltering UK economy are likely to pile more pressure on the Pound.

Meanwhile, unemployment data for Australia is set to print on Thursday. An expected drop would record a fresh lowest rate on record, boosting bets for further rate hikes from the Reserve Bank of Australia (RBA).

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