Pound Australian Dollar Exchange Rate News: GBP/AUD Strengthened Despite Souring Global Economic Fears

January 3, 2023 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Strengthened Despite Souring Global Economic Fears

Pound (GBP) Rallied Despite Persistent Domestic Headwinds

The Pound (GBP) found some moderate strength against its weaker and more risk-sensitive rivals on Tuesday despite mounting economic concerns for the UK. The International Monetary Fund (IMF) presented a stark warning for the global economy, and economists have expressed grave concerns for the UK in particular.

IMF Managing Director Kristalina Georgieva commented that 2023 could be even more difficult than the previous year. Georgieva also warned that a third of the world economy will be in recession. As both economies in China and Europe are weakening, and the US only slightly better off, the main drivers of global growth are all slowing. She added:

‘We expect one-third of the world economy to be in recession. Even countries that are not in recession, it would feel like recession for hundreds of millions of people.’

Elsewhere, an annual survey of UK economists by the Financial Times has presented a dire outlook for the new year. The majority commented that inflationary shocks from the Ukraine conflict and Covid will persist throughout the year, longer than anywhere else in Europe.

With the Bank of England (BoE) being left with no choice but to keep raising interest rates, and the UK government tightening its fiscal policies, the economy could suffer. More than four-fifths of economists also predict the UK to lag behind other major economies., Independent labour market economist, John Philpott, commented:

‘The 2023 recession will feel much worse than the economic impact of the pandemic.’

Australian Dollar (AUD) Undermined by Downbeat Chinese Data

Meanwhile, the Australian Dollar (AUD) struggled for demand in the face of poor manufacturing data from China. Highlighting a fourth consecutive month of declining activity amidst the Covid-stricken economy has seen a cautious market sentiment return.

Caixin manufacturing PMI remained in contraction territory as the score fell to 49, the lowest since September. Despite printing above market estimates, the spate of Covid spikes throughout December heavily weighed on the world’s second largest economy, disrupting orders, and slowing production. A fifth consecutive month of declining activity troubled investors, as the risk-sensitive ‘Aussie’ is a proxy-currency for China. Wang Zhe, Senior Economist at the Caixin commented on the latest reading:

‘Supply contracted, total demand remained weak, overseas demand shrank, employment deteriorated, logistics was sluggish, manufacturers faced growing pressure on their profitability.’

GBP/AUD Exchange Rate Forecast: BoE Lending Data to Weigh on Sterling?

Looking ahead, the Pound Australian Dollar exchange rate could see movement with the latest lending data from the Bank of England (BoE). With the cost-of-living crisis in full swing, a drop in consumer credit could dampen GBP investors’ spirits.

Meanwhile, the Australian Dollar could see fluctuations with the release of the Federal Open Market Committee (FOMC) minutes from their last policy meeting. A continued hawkish stance from the Federal Reserve could weigh on market sentiment, and the risk-sensitive ‘Aussie’ could come under pressure.

Turning attention domestically for the Australian Dollar, if final services PMI fall as expected, the ‘Aussie’ could also drop.

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