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Australian Economy
Home›Australian Economy›GBP/AUD Rate Remains Muted Amid Economic Woes

GBP/AUD Rate Remains Muted Amid Economic Woes

By Megan
May 24, 2022
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The Pound (GBP) is subdued against the Australian Dollar (AUD) today as inflationary fears take hold amid risk-on market moods.

At time of writing, the Pound Australian Dollar (GBP/AUD) exchange rate is around $1.76799, relatively unchanged from this morning.

Australian Dollar (AUD) Exchange Rates Buoyant amid Political Stability and Risk-On Market Sentiment

The Australian Dollar is strengthening as the country seems to have avoided a hung parliament after the weekend’s elections saw the Labor Party return to power, and Anthony Albanese sworn in as Australia’s 31st prime minister. With fears of political instability from a hung parliament now abating, risk-on trade has instead buoyed the ‘Aussie’.

More support could be headed for the Australian Dollar as the Reserve Bank of Australia (RBA) continues its hawkish outlook of a potentially bigger interest rate hike in June.

Elsewhere, investors are feeling upbeat that China could be set to begin loosening Covid restrictions amid falling cases. As the ‘Aussie’ trades as a proxy for the Chinese economy, this is giving AUD a lift.

Pound (GBP) Exchange Rates Waver amid Economic Uncertainty

The Pound enjoyed an unexpected boost on Friday after retail sales printed far better than expected. But with a recession looming, that data came with caveats, as it suggested the sharp rise in food store sales were due to more people staying home and stocking up, capping further demand for the Pound.

With the cost of living rising, driven in part by soaring energy costs, there are fears that the situation will only get worse. As calls for further government intervention are growing, Prime Minister Boris Johnson is reluctant to provide any concrete plans on how to tackle the cost-of-living crisis, and instead argues that work is the fix for the economic crisis:

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’I’m proud to say that you have to go all the way back to 1974 to find a time when the unemployment was as low in the UK as it is today, and whatever the difficulties that the post-Covid economy faces now, I just want you to dwell on that for a second.’

However, with wages unable to keep up with inflation, and a lot of those who are struggling already in jobs, there are fears that a worsening economic landscape could be on the horizon.

Michael Lewis, CEO of energy giant E.ON, warns that if something isn’t done, more families will be plunged into poverty:

‘What we do know is that we are seeing a significant number of people in fuel poverty. That’s to say, more than 10% of their disposable income spent on energy. In October, our model suggests that that could rise to 40% if the government doesn’t intervene in some way.’

All eyes will be on Johnson and the UK government and their proposed plans to support struggling households. Will the Pound encounter further headwinds?

GBP/AUD Exchange Rate Forecast: Domestic Data and Inflation to Further Limit Sterling?

Looking ahead, the Pound Australian Dollar exchange rate could see further movement with PMI data due out for both the UK and Australia. Experts predict a drop in activity for both countries, highlighting the increasing inflationary pressures and the potential subsequent headwinds on the GBP/AUD pairing.

Australian retail data could provide a boost to the Australian Dollar as sales are expected to climb, but not as high as the previous month, suggesting a slowdown which could deter investors.

Aside from these data releases this week, the Pound Australian Dollar may rely on global risk sentiment and the continued Ukraine conflict to drive movement. Brexit fears could weigh heavy on the Pound, potentially subduing the currency further.

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