Vulnerable As GBP/AUD Tests Key Support

The Pound to Australian Dollar (GBP/AUD) exchange rate briefly slipped below the AU$2.00 mark last week as markets reassessed the outlook for Australian monetary policy.

DAILY RECAP:

The Australian Dollar (AUD) initially rallied last week as markets continued to reprice expectations for the Reserve Bank of Australia.

Despite headline inflation cooling more sharply than forecast, Australia’s core inflation remained stubbornly elevated, keeping speculation alive that the RBA’s next policy move could still be a rate hike.

This hawkish repricing helped push GBP/AUD briefly below AU$2.00, marking a fresh ten-month low for the pair.

However, the ‘Aussie’ struggled to hold onto its gains through the latter half of the week as global risk sentiment deteriorated and investors increasingly rotated into safe-haven assets.

AUD was further undermined by disappointing Australian trade figures, which showed the country’s trade surplus narrowed to a three-month low in November amid a sharp contraction in exports.

The Pound (GBP) began the week on a firmer footing after Prime Minister Keir Starmer hinted at closer alignment with the EU single market, a shift welcomed by investors hoping for improved trade ties and reduced post-Brexit friction.

That optimism proved short-lived, however, after UK services sector activity for December was revised lower, reviving concerns over the resilience of the British economy.

In the absence of further UK economic releases, Sterling struggled to regain momentum and finished the week on the back foot against the Australian Dollar.

Near-Term GBP/AUD Forecast: UK GDP to Test Sterling Sentiment

Looking ahead, the Pound Australian Dollar exchange rate could come under renewed pressure with the release of the UK’s latest GDP figures.

Economists expect November’s data to show the economy contracted again, as uncertainty ahead of the autumn budget weighed on investment and consumer activity.

Confirmation of another monthly contraction is likely to strengthen expectations that the Bank of England will pursue a more aggressive easing cycle in 2026, potentially dragging Sterling lower.

Meanwhile, the Australian Dollar may face some headwinds if domestic data shows consumer confidence continued to deteriorate this month, which could temper hawkish RBA expectations and limit AUD upside.