Pound Australian Dollar (GBP/AUD) Exchange Rate Slips as UK Economy Stagnates

April 13, 2023 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Slips as UK Economy Stagnates

Pound Australian Dollar (GBP/AUD) Exchange Rate Slips as UK Economy Stagnates

The Pound Australian Dollar (GBP/AUD) exchange rate weakened during Thursday’s session, as the UK’s economy was seen to have stagnated during February.

Furthermore, upbeat labour market data in Australia increased rate hike bets amongst AUD investors, supporting the ‘Aussie’.

At the time of writing, GBP/AUD traded at around AU$1.8591, a fall of roughly 0.3% from Thursday’s morning rates.

Pound (GBP) Stumbles amid UK Economic Stagnation

The Pound (GBP) was undermined on Thursday by the release of the latest GDP data. This release showed that the UK economy had stagnated in February, and printed below forecasts of 0.1% at a flat 0%.

Despite signs of growth in the UK’s construction sector, contractions in the service and production sectors managed to offset this.

Tom Stevenson, Investment Director for Personal Investing at Fidelity International, commented: ‘Although January’s growth was revised up slightly to 0.4%, February’s flat line reflects the impact of the UK’s winter of discontent. Strike action took the shine off a modest increase in retail sales, while falling production in the month offset better construction activity.’

With this in mind, investors appeared to grow relatively pessimistic over the UK’s economic outlook, and began to expect that the UK’s economy would stagnate over the year.

However, the upward revision to January’s GDP data may have cushioned Sterling from further losses. 0.4% growth was seen during January, which signalled that the UK is more likely to have avoided a recession in the first quarter of 2023.

Furthermore, the upbeat market mood could also have provided limited support to Sterling. As the currency holds an increasingly risk sensitive nature, the bullish trade may have seen GBP supported by investors seeking riskier investment opportunities.

Australian Dollar (AUD) Strengthens amid Signs of Tight Labour Market

The Australian Dollar (AUD) strengthened on Thursday morning, following the release of forecast beating jobs data.

Printing overnight, most sets of employment data for March beat forecasts. Chiefly, the unemployment rate remained at 3.5%, rather than ticking upward to 3.6% as economists had expected. Furthermore, employment change increased by 53,000, significantly above the forecast of 20,000.

This may have sparked increased rate hike bets amongst AUD investors, despite the Reserve Bank of Australia’s (RBA) recent dovish pivot.

Sean Langcake, Head of Macroeconomic Forecasting for BIS Oxford Economics, commented on the data. He stated: ‘There are very few signs of weakness in these data and little to suggest the labour market is slackening in a meaningful way. This affirms our expectation that the Q1 CPI print will be a strong one, and we expect to see the RBA raising rates again in May.’

Upbeat Chinese data may have contributed further tailwinds to AUD, following a sharp rise in exports. The economic superpower’s exports rose by 14.8%, substantially above a forecast of a 7% contraction.

Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast:

Looking ahead for the Pound (GBP), Thursday afternoon brings a speech from Bank of England (BoE) Chief Economist Huw Pill. While yesterday’s speech from BoE Governor Andrew Bailey offered little insight on future rate hikes, he did state that monetary policy shouldn’t be impacted by banking turmoil.

If Pill reiterates this perspective, GBP could see a modest tailwind as it leaves room for further interest rate hikes. Currently, markets still expect a 25bps hike in May, and this speech could reaffirm that expectation.

Beyond this speech, data is thin on the ground through to the end of the week for Sterling. As such, external factors could shape GBP’s direction during Friday’s session. As Sterling holds an increasingly risk sensitive side, an upbeat market mood could provide some support.

For the Australian Dollar (AUD), the story is similar. With a lack of impactful data releases both locally and from China, the ‘Aussie’ is likely to be subject to external factors.

A souring market mood could bog down the risk sensitive Australian Dollar, as investors would likely look for safer investment opportunities.

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