Pound To Australian Dollar Price Forecast: Aussie Inflation Expectations In Focus

Pound-Australian Dollar could rebound if UK growth accelerates as forecast, while firmer Australian inflation expectations may support the Aussie.

The Pound to Australian Dollar (GBP/AUD) exchange rate ticked lower on Wednesday as positive risk flows helped to underpin demand for the ‘Aussie’.

At the time of writing, GBP/AUD was trading at AU$1.9380. Down around 0.3% from the start of Wednesday’s European session.

DAILY RECAP:

The Australian Dollar (AUD) outperformed the majority of its peers during Wednesday’s European session, finding support from a modest improvement in global risk appetite following Tuesday’s sharp rebound in the US Dollar (USD).

A recovery in technology stocks helped encourage investors to rotate back towards risk-sensitive currencies such as the ‘Aussie’, after a hawkish repricing of Federal Reserve interest rate expectations triggered a risk-rout on Tuesday.

However, capping AUD’s upside potential is recent signals from the Reserve Bank of Australia (RBA) that it is approaching the end of its tightening cycle

The Pound (GBP) traded on the back foot on Wednesday amid growing concerns that the Bank of England’s (BoE) slow response to rising inflationary pressures could allow price pressures to become more deeply entrenched in the UK economy.

The National Institute of Economic and Social Research (NIESR) thinktank has suggested that the bank needs to be more aggressive in tightening monetary policy or it risks inflation running above its 2% target until at least 2023.

The BoE raised interest rates by 25 basis points to 4% at its November meeting, being the last major central bank to restart its tightening cycle amid the ongoing energy price crisis.

However, the NIESR suggests the bank needs to raise rates to 5% if it is to stamp out persistent inflationary pressures, something which the BoE itself pushed back against at last week’s meeting.

Near-Term GBP/AUD Forecast: Acceleration in UK GDP to Lift Sterling?

Looking ahead, the next catalyst of movement for the Pound to Australian Dollar exchange rate will be the publication of the UK’s latest GDP figures on Thursday.

The preliminary figures for the third quarter are predicted to report an acceleration of GDP growth from 0.5% to 0.7%.

This could catapult Sterling sharply higher in the latter half of the weak as it may seen as encouraging the BoE to adopt a more hawkish approach to monetary policy.

Meanwhile, the ‘Aussie’ could catch bids during Thursday’s Asian session if Australian consumer inflation expectations continue to tick higher.

Our currency coverage draws on live market data, official economic releases and published bank research.