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Pound Australian Dollar Exchange Rate News: GBP/AUD Wavers amid Looming Recession Fears

July 25, 2022 - Written by John Cameron

Pound (GBP) Remains Quiet in the Wake of Poor Data

The Pound (GBP) is struggling to find demand as a lack of major data this week is leaving Sterling open to the souring market sentiment. With poor retail sales and mixed PMI data from Friday, and persistent political uncertainty, the Pound is left exposed to the worsening economic climate.

With another month of sliding retail sales, and concerning undertones with the manufacturing and service sectors, the economic outlook for the UK remains bleak. And with a myriad of concerns gripping the UK, and the Pound, Chris Williamson, chief business economist at S&P Global Market warns:

‘The concern is that rising interest rates, as the Bank of England seeks to control inflation, will cause demand growth to weaken further in the coming months.

‘To be hiking interest rates at a time of such weak business growth is unprecedented over the past quarter-century of survey history.’

Despite growing expectations of a bold 50bps rate hike at the next Bank of England (BoE) policy meeting, investors can’t shake the political jitters. The Conservative leadership race is now down to two and are due for a televised debate on Monday. Both Rishi Sunak and Liz Truss are battling to replace Boris Johnson as the scandal-ridden Conservative party attempt to repair their public image.

Both Truss and Sunak set out their respective plans, with Truss focusing on investment plans for UK businesses with an emphasis on boosting growth during rising inflation. Sunak on the other hand promises to curb China’s growing soft power in the UK.

Investors are concerned with the contrasting and potentially damaging tax policies as both candidates strive to drum up support amongst the Tories, potentially at the detriment to the economy. One shared view is that of a strong pro-Brexit. Both candidates have vowed to scrap any EU laws that are a hindrance to UK growth, potentially pushing the country closer to trade wars with the EU.

Citibank strategists are warning that stronger headwinds are on the way for the UK economy:

‘The UK post-pandemic recovery is lagging rest of the G10 economies and inflation is likely to prove stickier due to Brexit, complicating further BoE’s policy.’

Australian Dollar (AUD) Wavers amid Rising Covid Cases

The Australian Dollar (AUD) is seeing mixed success today as fears of a looming global recession continue to grow and dominate the market mood. With inflation continually soaring worldwide, coupled with global supply chain issues made worse by the Ukraine conflict and rising Covid cases, the risk-sensitive ‘Aussie’ could see further turbulent times.

Troubling news out of China as Covid mass testing is underway in both Shanghai and Tianjin, heightening the chances of lockdowns. With China maintaining their zero-Covid policy, further restrictions to the world’s second largest economy will have costly repercussions. Domestically, surging Omicron variant cases are sapping investors’ confidence.

GBP/AUD Exchange Rate Forecast: Rising Australian Inflation to Impact the Pound?

Looking ahead to the rest of the week, Australian inflation figures are due on Wednesday. If data prints to expectations, it will make the highest reading in over 30 years.
The Pound could be left open to market sentiment as data remains thin on the ground for this week. With the ongoing political uncertainty capping any meaningful gains of the growing prospect of a BoE 50bps hike in August.

Elsewhere, the developing Covid situation could continue to weigh on the ‘Aussie’ as any further slowdown or disruption to China’s economy will have widespread impacts on the global market.

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