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Pound Australian Dollar Exchange Rate News: GBP/AUD Softens as UK Inflationary Pressures Weigh Heavy

July 26, 2022 - Written by John Cameron

Pound (GBP) Falls on Mounting Inflationary Pressures

The Pound (GBP) is experiencing downward pressures as the release of the Confederation of British Industry (CBI) July retail sales balance further compounds the cost-of-living crisis. Following on from a second consecutive month of declining retail sales, the CBI survey revealed that British retailers are growing increasingly pessimistic about the economic outlook.

CBI Economist Martin Sartorius said of the data:

‘Retail activity continues to take a hit as consumers struggle to cope with the effects of the cost-of-living crisis.’

Despite printing above forecasts, the CBI distributive trade survey showed a fourth consecutive month of falling retail sales. The figures are the weakest in 15 months, back when Covid restrictions heavily impacted the retail industry in March 2021. Consumers are continuing to feel the mounting cost-of-living pressures, with retailers expecting the slump to carry through the summer.

Elsewhere, political uncertainty continues to weigh on the Pound as Rishi Sunak and Liz Truss went head-to-head in their first televised debate. The gloves were well and truly off as the deep Conservative party divide was on full display as both candidates traded barbs.

Conflicting and varying tax plans will likely continue to concern investors as the political volatility is likely to carry on until the next Prime Minister is decided on September 5. With both candidates adopting very different policies, the Pound could see further fluctuations as investors attempt to deconstruct the path to economic recovery.

Australian Dollar (AUD) Resilient Ahead of Inflation Rate

The Australian Dollar (AUD) is holding its ground against its rivals today as investors await the annual inflation rate for Q2. With expectations of a jump up to 6.2%, the ‘Aussie’ could see further boosting if inflation comes in hotter-than-expected.

Lending further support today is the strengthening iron ore prices, as expectations of a Chinese economic rebound in Q3 continue to grow. With Covid lockdowns and restrictions impacting the demand for steel, a much-needed rebound could boost investor morale.

However, until such an economic rebound is seen, the Australian Dollar could come under pressure from the ongoing Covid situation. Shenzhen, the country’s tech hub, has ordered more than 100 major companies to resume ‘closed-loop’ systems as the country maintains its zero-Covid policy. Workers are expected to live and work on-site in order to keep businesses in production.

Meanwhile, global recession fears are returning to the forefront once again as the International Monetary Fund (IMF) warned that the global economy is headed for a severe downturn. Global output slowed in the months between April and June, owing much to the Russian invasion of Ukraine and the Covid slowdowns in China. Pierre-Olivier Gourinchas, the IMF’s chief economist, said:

‘The outlook has darkened significantly in April. The world may soon be teetering on the edge of a global recession’

‘Tighter monetary policy will inevitably have real economic costs, but delay will only exacerbate them.’

The risk-sensitive ‘Aussie’ is likely to experience further headwinds if global economic fears continue to grow, deterring investors in favour of safe-havens.

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

Looking ahead, with data remaining thin on the ground for the rest of Tuesday, the Pound Australian Dollar will be left to market sentiment. With investors eagerly awaiting the Australian inflation figure, the ‘Aussie’ could see an uptick if inflation prints as forecast.

Elsewhere, the Pound will be left vulnerable to domestic issues, the ongoing political uncertainty surrounding the next Prime Minister could exert further pressure on Sterling.

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