Pound Australian Dollar Exchange Rate News: GBP/AUD Plummets as UK Recession Arrives

November 9, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Plummets as UK Recession Arrives

GBP/AUD Exchange Rate Dives as Investors Focus on UK Retail Struggles

The Pound to Australian Dollar (GBP/AUD) exchange rate dropped on Wednesday as major UK retailers began reporting drops in sales and profits.

At time of writing, the GBP/AUD exchange rate traded at around AU$1.7646, which was down roughly 0.5% from Wednesday’s opening rate.

Pound (GBP) Struggling amid Grim Economic Outlook

The Pound (GBP) was down against the majority if its peers on Wednesday as recession concerns weighed on investors.

Sterling started the day directionless against most other currencies before falling amid a slew of downbeat domestic headlines. Several UK businesses revealed they were beginning to feel the effects of the recession.

Many reported that they had experienced a drop in sales in the last six months. Retail giant Marks & Spencer saw their profits drop by almost 24%.

Some retailers have begun to roll out Christmas deals early in an attempt to boost sales and ease consumer cost-of-living concerns. Meanwhile, Wetherspoons is selling dozens of its pubs amid a drop in sales and Made.com has entered administration.

Sean Moran, an insolvency partner at law firm Shakespeare Martineau, said of the situation:

‘As consumers continue to tighten their belts due to of the cost-of-living crisis, retailers will have to work harder to entice purchasers, particularly for luxury or high-value items.’

The Pound struggled to rally support on Wednesday, undercut by the encroaching winter recession.

Australian Dollar (AUD) Gains Capped by Souring Risk Sentiment

The risk-sensitive Australian Dollar (AUD) was up against the Pound but down elsewhere on Wednesday as market sentiment soured.

The pending results of the US midterm elections contributed to the risk-off mood. Markets are cautious as the elections remain on a knife edge. If the Democrats can stave off the Republican ‘Red wave’, they may be able to pass potentially inflationary policies, which in turn would force the Federal Reserve to raise interest rates. Higher US interest rates often restrict the global economy, hence the risk-off mood.

Data pertaining to China’s inflation also attributed to AUD’s losses. The Australian Dollar acts as a proxy currency for China, as such, any developments from within the country can have a great impact on the ‘Aussie’.

China’s headline inflation dropped from 2.8% to 2.1% in October, missing market forecasts of 2.4%. The drop indicates slowing growth in the Chinese economy, which thereby weighed on AUD.

GBP/AUD Exchange Rate Forecast: Market Sentiment to Dent AUD?

Looking ahead, the Pound Australian Dollar exchange rate could continue to be driven by the widespread risk aversion. If the market mood remains downbeat, AUD could tick lower.

During overnight trade, Australian consumer inflation expectations are due to be released. If the data prints as forecast this could indicate that inflation in Australia has peaked. This would feed into the Reserve Bank of Australia’s (RBA) narrative and potentially dent the ‘Aussie’, with the RBA looking to slow its pace of policy tightening.

Looking at the Pound, Bank of England (BoE) policymaker Silvana Tenreyro is due to give a speech tomorrow. Tenreyro has a history of being dovish; if her speech reflects this then the Pound could experience further losses.
In the meantime, the Pound could continue to lose ground amongst its peers as recession and cost-of-living concerns continue to worry investors.

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