Pound-Australian Dollar could strengthen if UK inflation boosts BoE rate expectations, while a risk-off mood may keep the Aussie under pressure.
The Pound Australian Dollar (GBP/AUD) exchange rate wavered near the previous day’s 12-day high on Tuesday, as a risk-off mood subdued the ‘Aussie’ and markets digested the UK’s latest jobs report.
At the time of writing, GBP/AUD was trading at AU$1.8904, virtually unchanged on the day.
Pound to Dollar (GBP/USD): 1.347346 (-0.20%)
Australian Dollar to Dollar (AUD/USD): 0.712897 (-0.12%)
DAILY RECAP:
The Pound (GBP) was unsure on Tuesday as markets reacted to the latest UK labour market overview.
On the surface, the data showed broad stability in the British jobs market in the three months to July. Unemployment held steady, rather than rising as forecast, while wage growth printed in line with expectations.
However, some economists pointed out signs of underlying weakness below the headline figures.
In addition, concerns about surging UK bond yields pressured the Pound, amid fears that rising government borrowing costs could lead to tax hikes, spending cuts, and slower growth.
Meanwhile, the Australian Dollar (AUD) was subdued on Tuesday as a risk-averse market mood continued to dampen demand for the risk-sensitive currency.
Investors have grown increasingly concerned about the crisis in the Middle East this week as tensions escalate. Yemen’s Houthi rebels tightened their control over a key shipping route, while Saudi Arabia blamed Iraqi militants for an attack on a key oil pipeline.
Energy prices have surged as the conflict widens, raising fears about the impact on the global economy.
Near-Term GBP/AUD Forecast: UK Inflation to Support Sterling?
Looking ahead, Wednesday brings the UK’s latest consumer price index, which could support the Pound.
Markets expect the CPI to show that price growth accelerated in August. Headline inflation is forecast to have risen from 2.9% to 3.1%, while core inflation is set to have increased from 2.6% to 2.7%.
If inflation accelerated last month – before this month’s surge in oil prices – it could boost bets that the Bank of England (BoE) may consider raising interest rates sooner than expected.
However, a small rise in inflation may not be enough to move the needle on BoE bets ahead of the bank’s decision on Thursday.
As for the ‘Aussie’, global risk dynamics could drive the currency. If markets remain decisively risk-off, AUD could struggle.
Our currency coverage draws on live market data, official economic releases and published bank research.
