Australian Economy

GBP/AUD Drops Despite Better-than-Expected UK GDP

Pound-to- Australian-Dollar-rate-3

The Pound Australian Dollar (GBP/AUD) exchange rate saw a knee jerk reaction higher in the wake of the positive UK GDP data but soon slipped as concerns of a slowdown in economic growth returned.

At time of writing the GBP/AUD was trading around $1.75, a moderate drop from this morning.

Pound (GBP) Exchange Rates Waver Despite GDP Printing an Unexpected Growth

The Pound (GBP) initially saw a spike as positive GDP data was released for the month of May. But demand soon sapped again as concerning undertones highlighted the darkening economic landscape.

UK GDP expanded by 0.5% on the month, after a decline by 0.2% in the month of April. With expectations of zero growth due to the soaring cost-of-living crisis, the boost was fuelled by a surge in holiday bookings.

Despite the rebound in the economy, a decline was seen in consumer-facing services as retail sales suffered a drop, as did sports activities and recreation. Experts predict that stronger GDP figures could push the Bank of England (BoE) in raising interest rates higher by 50bps at its next monetary policy meeting.

Kitty Ussher, chief economist at the Institute of Directors, said of the data:

‘While many people are undoubtedly feeling the pressure on household bills, the much-publicised weakening in retail sales is also partly offset by consumers switching back to spending on the separate category of tourism travel.

‘Overall, there’s nothing in this data that will prevent the Bank of England from continuing to raise interest rates when it meets over the summer.’

bannerHowever, the outlook isn’t as bright, concerns that the rising cost of living could cause a sharp drop in activity for June. If the economy was to contract once again in the second quarter of 2022, a recession could well be a reality. A further drop in household disposable income could compound the issues surrounding the UK economy that includes Brexit uncertainty, soaring energy costs, and rising Covid cases in China.

Meanwhile, the Conservative 1922 Committee announced the final eight candidates for the soon to be vacant Prime Minister post. Political uncertainty is set to continue, and the Pound could encounter further headwinds as the candidates with varying tax plans could cause more harm to the economy.

Elsewhere, BoE Governor Andrew Bailey leaves the door open to further aggressive rate hikes as he reiterated the central bank’s commitment to bringing inflation back down to its 2% target.

Australian Dollar (AUD) Exchange Rates Climb Despite Rising Risk-Aversion

The Australian Dollar (AUD) is buoyed today as news out of China as the world’s second largest economy saw June’s surplus in trade expanding. Exports jumped by 22% compared to last month compared to 11.7% expected, highlighting the strengthening of the Chinese economy. Being a proxy-currency to China, the ‘Aussie’ can benefit from China’s economic recovery.

Elsewhere, concerns of rising Covid cases could weigh on the Australian Dollar, with Health Minister Mark Butler warning of the surge in infections and the scaling back of government support. With the new variant currently on the rise in China, and cases springing up in Australia, a slowdown in the economy could weigh on the ‘Aussie’. Butler said:

‘There are going to be millions of people infected by Covid in this coming few weeks’ period.

‘We have 250,000 to 300,000 people today who are infected on official data. The real number’s probably twice that, or maybe even more, according to what we understand about this variant.’

GBP/AUD Exchange Rate Forecast: Australian Unemployment Data to Boost the Aussie?

Looking ahead, data is thin on the ground so the Pound Australian Dollar exchange rate will be left to market sentiment as markets continue to adjust to the UK’s positive GDP data.

Elsewhere, tomorrow sees the release of Australian unemployment data. If forecasts prove correct, the unemployment rate will remain the lowest on record for the fourth consecutive month.

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