Pound Australian Dollar Exchange Rate News: GBP/AUD Wavered amid Looming UK Energy Bill Crisis

August 24, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Wavered amid Looming UK Energy Bill Crisis

Pound (GBP) Under Pressure amid Looming Energy Crisis

The Pound (GBP) struggled for demand on Wednesday as the looming energy price cap, which is set to soar by 80%, is weighing on the economy, and Sterling.

With millions of households set to struggle in the winter, inflation is expected to hit 18% early next year. Experts are now warning that the Bank of England (BoE) may be forced to hike interest rates to 4% next year. After the central bank raised interest rates by 0.5%, the biggest single hike in 30 years, it is expected that further bold hikes will continue as the BoE attempts to rein in out-of-control inflation.

As calls grow for financial aid to shield households from the soaring cost of living, there are concerns of the cost of such fiscal support. A financial rescue plan, proposed by Chief Executive of Scottish Power Keith Anderson, that would cost £100bn. By capping energy bills at £2000 a year, many households will be shielded from the looming energy bill crisis.

However, the cost of that fiscal package could be damaging to the UK economy in the long run. Torsten Bell, Chief Executive of the Resolution Foundation, has warned that it would lead to the third largest increase in UK debt in 15 years. But one major difference between this crisis and the previous two; financial crisis of 2008 and Covid, is that the cost of borrowing is soaring.

Rishi Sunak, Conservative leadership candidate, is wary of ramping up borrowing costs amidst soaring inflationary pressures. He said:

‘I think that is a gamble with savings, with their pensions, with mortgage rates, in making inflation become more embedded, and I don’t think that will help anybody if that happens because inflation makes everybody poorer, it’s pernicious. I want to get a grip of inflation quickly.’

Australian Dollar (AUD) Firmed Despite Poor PMI Data

The Australian Dollar (AUD) strengthened modestly against most of its peers on Wednesday despite falling short in PMI forecasts on Tuesday.

Both manufacturing and services slid lower than expected, with the service sector contracting for the first time since January. Inflationary pressures and interest rate rises helped dampen business activity. However, despite manufacturing missing forecasts, the sector enjoyed its 27th month of expansion, boosting the ‘Aussie’.

Providing further support to the Australian Dollar is the recent decision by the People’s Bank of China (PBoC) to cut its benchmark lending rate even further from last week as the country attempts to reignite the faltering economy. Surging iron ore and steel prices are propping up the ‘Aussie’ as Chinese manufacturers are taking advantage of the lowering rates. Surging Covid cases, a property crisis and record drought is threatening to derail the world’s second largest economy, but the recent financial life raft provided by the PBoC is lending much-needed to support to the Australia Dollar, a proxy currency to China.

GBP/AUD Exchange Rate Forecast: Global Risk Sentiment to Boost the Aussie?

With a lack of major data on the calendar, the Pound Australian Dollar exchange rate will be left open to market sentiment. Any further updates out of China could further influence the ‘Aussie’.

Meanwhile, domestic issues are likely to continue to weigh on the UK’s economy, Sterling will find it difficult to make any significant gains from an improving global market sentiment.

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