Pound Australian Dollar Exchange Rate News: GBP/AUD Traded Erratically on UK’s Economic Instability

October 11, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Traded Erratically on UK’s Economic Instability

Pound (GBP) Muted amid Unconvincing ‘Trussonomics’

The Pound (GBP) failed to muster up much support on Tuesday amid turbulent trading conditions.

The Bank of England (BoE) opted to intervene for the second time this week as pension funds call for further assistance. After the mini-budget market meltdown that saw the central bank forced into extending support to calm the wayward markets, the BoE intervened again on Tuesday.

Fears of growing instability in the UK economy has prompted the BoE to extend its bond-buying schemes to restore order to a jittery market. However, the many pension funds are now calling on the BoE to extend the bond market support beyond the 14 October cut off. James Athey, investment director at abrdn, warned that the BoE have inadvertently placed themselves in a perilous position.

‘While the medium-term wisdom of providing significant fiscal support to the UK economy can be debated, doing so at a time of such heightened volatility in markets and with inflation still raging seems quite obviously ill-advised.’

Meanwhile, mixed labour market data failed to provide much support for Sterling as the unemployment rate fell to the lowest level since 1974. However, economic activity increased by 252,000, the biggest jump since records began in 1971. Driven by a record number of people leaving the jobs market, either through illness or becoming a student, tell-tale signs that the labour market is cooling.

Elsewhere, Chancellor Kwasi Kwarteng will be attending parliament after its recess, and will be taking questions over the government’s growth plan. The Institute of Fiscal Studies has claimed that Kwarteng will have to find £60bn to fund the sweeping tax cuts and the rest of the mini-budget. Fears of slashing public spending are weighing both the UK and the Pound itself.

Australian Dollar (AUD) Subdued amid Mixed Confidence Data

Meanwhile, the Australian Dollar (AUD) is also struggling for demand amid a risk-averse market and worrying domestic issues.

Consumer and business confidence releases show mixed results, but ultimately paint a dire picture moving forward. Westpac released October’s consumer confidence index, which came in better-than-expected with a drop of 0.9% versus a 2.8% slump. The data shows that confidence in the Australian economy remains near historic lows. Bill Evans, Chief Economist at Westpac said:

‘The index remains in deeply pessimistic territory. The key drags on confidence continue to come from a surge in the cost of living, rising interest rates, and concerns about the near-term outlook for the economy.’

Elsewhere, the NAB business confidence slid lower, marking the lowest reading since June as rising interest rates and gloomy economic outlooks weigh heavily on Australian firms. However, the good news is that business conditions strengthened above their pre-Covid levels as sales continued to surge. Conditions across industries and states, with retail and wholesale enjoying elevated success. NAB Group Chief Economist Alan Oster said:

‘Overall, the survey indicates the economy has remained resilient through Q3. Encouragingly, the cost and price growth measures suggest the peak in inflation may be near.’

GBP/AUD Exchange Rate Forecast: Stagnant UK Economy to Weigh on the Pound?

Looking ahead, the Pound Australian Dollar exchange rate could see further movement with the release of UK GDP growth data. An expected stagnation in the UK economy could see the Pound trend downwards once again as inflationary pressures continue to take their toll.

Meanwhile, any further developments in Ukraine or China could weigh on the ‘Aussie’. The risk-sensitive currency could slide if global market sentiment takes another hit.

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