Pound Australian Dollar Exchange Rate News: GBP/AUD Softened Ahead of Expected Contraction of UK Economy

August 11, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Softened Ahead of Expected Contraction of UK Economy

Pound (GBP) Muted ahead of Expected Contraction of GDP

The Pound (GBP) was under increased pressure as investors remained cautious ahead of key GDP data for the month of June. With expectations of the UK economy contracting, Sterling encountered renewed pressure.

A lack of data has left the Pound exposed to market sentiment, and despite a relative uptick in market sentiment after the softening of US inflation data, the cost-of-living crisis continues to weigh heavily.

An expected 0.9% contraction in the UK economy is weighing on the minds of investors and is sapping demand for the Pound. Mounting recession fears, compounded by the Bank of England’s (BoE) bleak economic outlook, is keeping a lid on any gains for the Pound.

The cost-of-living crisis and political uncertainty also weighed heavily on Sterling. Liz Truss, the clear frontrunner in the Conservative leadership race, seemingly U-turning on her previous statements on not providing financial support. Truss had previously stated that she would only provide help through tax cuts and suspending green levies.

With energy bill prices expected to skyrocket 80% in the autumn, Truss drew criticism from across the board, and not for the first time, Truss had to back track. Investors remain concerned with the conflicting and unconvincing fiscal policies shown by both candidates, and until the political uncertainty is quelled, the Pound could remain turbulent.

Australian Dollar (AUD) Buoyed on Risk-On Impulse

The Australian Dollar (AUD) firmed against many of its peers as softer-than-expected US inflation boosted risk-sensitive currencies amid an improvement in global market sentiment.

However, with fears of a global recession ever present, including fresh geopolitical tensions involving China, a downturn in sentiment could be imminent. Since the US irked China with the visit to Taiwan from House of Representative Speaker Nancy Pelosi, tensions have mounted.

Making the first appearance in 18 years, a Chinese ambassador attended the National Press Club in Canberra and took questions from Australian journalists. Xiao Qian, Chinese ambassador to Australia, issued stark comments surrounding the Taiwan situation. Asked on the possibility of a hostile invasion from Beijing on the island nation of Taiwan, Qian responded:

‘First, I would rather not use the word ‘invasion’ when we talk about China and Taiwan. Taiwan is different from any other scenario or situation, (it) is a province of the People’s Republic of China.

‘We can never rule out the option to use other means (to reunify) so when necessary, when compelled, we are ready to use all necessary means. As to what does it mean ‘all necessary means’? You can use your imagination.’

The remainder of the conference merely outlined the shaky relationship between Australia and their biggest trade partner, China. Divergent stances on a variety of political issues such as Taiwan and the Ukraine conflict, also the detainment of Australian citizens, could weigh on the ‘Aussie’. A souring relationship could impact both the Australian economy in turn, the Australian Dollar.

GBP/AUD Exchange Rate Forecast: Expected Contraction Downbeat UK GDP to Sink the Pound?

With no major data left on the calendar for the rest of Thursday for the Pound Australian Dollar exchange rate, all eyes will be on the release of UK GDP data for the month of June. A 0.9% expected contraction could sink the Pound.

Meanwhile, the ‘Aussie’ will also be left to market sentiment, and a waning global market sentiment on the back of recession fears and geopolitical tensions could hinder the Australian Dollar.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Australian Dollar Forecasts