Pound Australian Dollar Exchange Rate News: GBP/AUD Drops as UK Inflation Hits 10.1%

October 19, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Drops as UK Inflation Hits 10.1%

GBP/AUD Exchange Rate Slips as UK inflation Hits 40-Year High

The Pound to Australian Dollar (GBP/AUD) exchange rate was struggling for support on Wednesday as UK inflation figures printed hotter-than-expected.

At time of writing the GBP/AUD exchange rate traded around $1.7883, which was down roughly 0.4% from Wednesday’s opening levels.

Pound (GBP) Faces Headwinds amid Unexpected Inflation Data Increase

The Pound (GBP) was down against the majority of its peers on Wednesday morning as UK inflation data printed hotter-than-expected.

Headline inflation hit a 40-year high, returning to its July level of 10.1%. Figures were expected to rise from 9.9% to 10%. Turning to core inflation, which omits volatile commodities like food and petrol, inflation rose to 6.5%. This also overshot forecasts, which predicted an increase from 6.3% to 6.4%.

GBP investors are concerned by the impact higher inflation could have on the country’s cost-of-living-crisis, keeping the Pound depressed during Wednesday’s early morning trade.

This concern was also echoed by economists who were focused on the added strain of the rising energy costs and lack of support. Jack Leslie, Senior Economist at the Resolution Foundation, said UK households need support this winter as inflation soars:

‘Surging food prices have driven a return to double-digit inflation across Britain and high inflation looks set to stay with us for some time too, with accelerating services producer price inflation and the early end of the Energy Price Guarantee likely to put upward pressure on consumer prices next year.’

‘This bleak outlook means that family incomes will continue to fall sharply again next year, especially as support with energy bills is withdrawn.’

Despite inflation adding pressure to the already volatile Pound, the currency’s losses were somewhat limited by Bank of England (BoE) expectations. Investors expect an aggressive interest rate hike from the central bank at their next policy meeting.

Australian Dollar (AUD) Mixed amid Cautious Market Mood

The Australian Dollar (AUD) was up against the Pound but struggled to find support elsewhere as the risk-sensitive currency was undermined by a downbeat market mood on Wednesday.

This has been attributed to issues within the Chinese economy. The ‘Aussie’ acts as a proxy currency for China, so can be greatly impacted by issues concerning the world’s second largest economy.

The country postponed the release of its Q3 GDP report on Tuesday, which spooked investors. As John Kilduff, partner at Again Capital LLC in New York said:

‘It’s not a good sign when China decides not to publish economic figures’.

China’s economy has shown signs of slowing down in recent months, concerning markets. This is partially in response to the country’s zero Covid policy which has begun to hinder growth.

However, the Australian Dollar’s losses were limited by hawkish comments from the Reserve Bank of Australia (RBA). According to policymakers, the bank is committed to tackling rising inflation. This reassurance, coupled with a strong labour market has boosted investors’ confidence of an aggressive interest rate hike at the bank’s next policy meeting.

GBP/AUD Exchange Rate Forecast: PMQ’s to Drive GBP?

Looking ahead, the Pound Australian Dollar exchange rate could see significant movement in response to Prime Minister questions. This will be Truss’s first PMQ’s since Jeremy Hunt became chancellor and scrapped most of her mini budget.

Truss’s performance could stoke further volatility within Sterling.

Turning to the Australian Dollar, the risk-sensitive ‘Aussie’ will likely remain sensitive to the downbeat market mood. The proxy currency will be particularly suspectable to developments within China and could lose support amid any negative headlines.

Looking at tomorrow, Australian unemployment figures are expected to remain the same on Thursday, but if there is an unexpected rise, this could impact the RBA’s interest rate decision.

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