Pound Australian Dollar (GBP/AUD) Exchange Rate Drops as UK Political Volatility Continues

October 18, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Drops as UK Political Volatility Continues

Pound Australian Dollar (GBP/AUD) Exchange Rate Falls amid UK Political Uncertainty

The Pound (GBP) saw a drop against the Australian Dollar (AUD) on Tuesday, as UK governmental volatility undermines the
pairing.

This saw the GBP/AUD exchange rate dip to around AU$1.7970, showing a fall of roughly 0.3%

Pound (GBP) Cracks as Political Uncertainty Continues

Tuesday saw the Pound (GBP) crumble as political uncertainty continued with the UK.

Liz Truss’ position was seen as increasingly untenable following Chancellor Jeremy Hunt’s evisceration of his predecessor’s mini-budget. This served to dent the Pound in Tuesday’s session, seeing Sterling tumble across the board.

The sentiment was explored by Kallum Pickering, senior economist at Berenberg, who theorised: ‘It is now our base case that, sooner (probably) or later, the Conservative parliamentarians will replace Liz Truss. The scrapping of large parts of her policy manifesto suggests she is in power in name only. We would not be surprised if UK politics turns noisy in coming days as the Truss government breaks down. We have been here before with previous PMs.’

Adding to this was the Bank of England (BoE) denying a report that billions of pounds of bond sales were to be delayed further, owing to the ‘distressed market’.

The BoE’s response prompted the gilt market to spiral again, with bond yields rising sharply on Tuesday. This dented GBP significantly and prompted a fall from Monday’s recovery.

Australian Dollar (AUD) Mixed as Global Economic Outlook Darkens

Tuesday saw the Australian Dollar (AUD) directionless, as the global economic outlook continued to sour.

The significant weight on the ‘Aussie’ came from concerns around China’s economy. As the world’s second largest economy opted to delay key economic data, it raised a lot of questions about how healthy the Chinese economy was and prompted further fears of a global recession.

Further to this was the timing of the delay, which came during the congress of the ruling Communist Party. Previous occasions have seen data releases come as normal, prompting further questions about the Chinese economy, and weighing upon the Australian Dollar.

In Australia, Tuesday saw the release of the Reserve Bank of Australia’s meeting minutes. The minutes highlighted that the central bank would take further action to quell the rising inflation rate.

This was compounded by Second Governor Michele Bullock, who stated: ‘The Board expects to increase interest rates further over coming months. But the pace and timing will be determined by the economic data. Factors that the Board will be monitoring closely include the global economy, household spending and wage- and price-setting behaviour. You should be in no doubt, though, that the Board is determined to do what is necessary to return inflation to target.’

Bullock further highlighted the RBA’s ability to move faster than other central banks on inflation if needs be and reaffirmed their commitment to a target rate of 2-3%.

Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: UK Inflation in Focus

This week sees the release of the UK’s inflation data for September. Headline inflation is forecast to increase from 9.9% to 10%. Should this print to forecast, GBP may see a boost as interest rate hike bets are solidified.

Elsewhere, the UK political landscape may continue to weigh on the Pound. Liz Truss’ tenuous position as prime minister will be in focus, and any moves may dent Sterling.

For Australia, the unemployment rate for September is due to be released, with no change forecast. However, as the data rose from July to August, another surprise increase could weigh on the ‘Aussie’.

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