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Pound Australian Dollar Exchange Rate News: GBP/AUD Wavered on Bleak BoE Economic Outlook

August 5, 2022 - Written by John Cameron

Pound (GBP) Under Intense Pressure from Recession Fears

The Pound (GBP) struggled for demand in the wake of the Bank of England’s (BoE) biggest rate hike in 27 years. Despite an apparent hawkish hike, the concerning undertones were confirmed in the press conference that followed the central bank’s decision to raise rates to 1.75%.

BoE Governor Andrew Bailey immediately followed the decision by outlining the numerous challenges both the BoE and the UK will face in the coming months, and years. A stark warning was issued as Bailey highlighted the worsening cost-of-living crisis, and the impending recession that is coming by the end of the year. He added that interest rates won’t necessarily return to pre-financial crisis levels:

‘We don't know what normal interest rates will be in future, (and we) don't think selling QE assets will have a big impact on market interest rates. We are going to be dealing with impact of high inflation for some time.’

As the UK braces for a recession, which could last for five quarters, the cost-of-living crisis is set to worsen. The Office for National Statistics (ONS) released their cost-of-living survey, and it shows clearly that the poorest households will suffer the most:

‘Among those who had seen cost of living increases, those living in the most deprived fifth of areas in England were more likely to have cut back on food and essentials (42%) than average (35%).

Meanwhile, those in the least deprived fifth of areas were less likely (27%).’

Elsewhere, the ‘summer of discontent’ has been quietly ticking along, as the upcoming eight-day strike by Felixstowe dock workers will have significant impact on the UK. The UK’s largest dock deals with 40% of all containers leaving and entering the UK. Guardian writer Joanna Partridge explains:

‘Felixstowe handles about 45,000 containers each week, with freight including clothing, consumer goods and manufacturing components.

‘The Unite strike is timed to coincide with an increase in traffic: the number of containers begins to rise from August, as retailers bring over more goods, particularly from the far east, to start filling their warehouses before Christmas.’

Australian Dollar (AUD) Wavered on Pessimistic RBA

The Australian Dollar (AUD) failed to find much demand as the Reserve Bank of Australia (RBA) followed in the footsteps of the BoE and issued a downbeat forecast for the Australian economy. Waning growth forecasts and increased interest rate hikes underscored the latest policy statement.

In the quarterly statement, the RBA increased inflation forecasts, downgraded growth outlook, and even warned of an eventual rise in unemployment. Inflation is now expected to peak at 7.75% by the turn of the year, and not expected to retreat far in 2023.

The growing uncertainty surrounding the Australian economy, now compounded by the pessimistic mood from the RBA, will likely weigh on the ‘Aussie’.

GBP/AUD Exchange Rate Forecast: Downbeat Market Mood to Influence Movement?

Without any major data to go on now for the rest of the session, the Pound Australian Dollar exchange rate will now be left to the souring market mood. With little data on the calendar moving into next week either, fluctuations can be expected.

Elsewhere, the ongoing political uncertainty in the UK will continue to exert downward pressures on Sterling.

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