Six-Week Best On Risk Aversion

The Pound to Australian Dollar (GBP/AUD) exchange rate rose to a six-week high last week, as market anxiety around the crisis in the Middle East weighed heavily on the ‘Aussie’.

WEEKLY RECAP:

The Pound (GBP) got off to a strong start last week, reversing most of its losses from the end of the prior week as UK bond yields fell back from their recent highs.

Sterling’s recovery proved fleeting, as the UK’s latest PMIs on Tuesday highlighted how the war in the Middle East has sparked an alarming slowdown in private-sector activity this month.

GBP exchange rates were then steady through the middle of the week, with the release of the UK’s consumer price index.

While February’s data was dated by the energy price surge we have seen this month, a surprise uptick in core inflation was still enough to reinforce bets for up to three interest rate hikes from the Bank of England (BoE) this year.

Sterling then came under fresh pressure at the end of the session as the UK’s latest retail sales data reported a decline in sales last month.

Meanwhile, the Australian Dollar (AUD) got off to a shaky start last week, with the risk-sensitive currency struggling to find a clear footing amid heightened geopolitical uncertainty.

Developments in the Middle East drove the bulk of this volatility as sentiment fluctuated in response to conflicting signals surrounding potential peace talks between the United States and Iran.

While US officials, including President Donald Trump, suggested that negotiations were progressing and even hinted at a possible deal, Iranian authorities repeatedly denied that any meaningful discussions were taking place.

The ‘Aussie’ then faced fresh pressure in mid-week trade, being undermined by a softer-than-expected domestic inflation print, which tempered expectations for additional monetary tightening from the Reserve Bank of Australia (RBA) this year.

As markets grew increasingly sceptical of US-Iran peace talks, risk aversion gripped markets, with the Australian Dollar weakening significantly throughout the week.

Near-Term GBP/AUD Forecast

Turning to this week, it’s safe to assume that movement in the Pound to Australian Dollar exchange rate will remain sensitive to events in the Middle East, with the uncertainty posed by the conflict likely to drive more volatility in the pairing.

Also of focus will be the publication of the minutes from the RBA’s latest policy meeting, with the ‘Aussie’ poised to fall if the minutes highlight the more dovish voices that voted against this month’s rate hike.

Meanwhile, the UK’s finalised GDP reading for the last quarter of 2025 could impact Sterling if it is revised higher or lower from its preliminary estimate.