Strong UK Inflation Pushed the Australian Dollar to Pound Exchange Rate Lower
Despite some strong Australian confidence stats on Tuesday, the Australian Dollar to Pound (AUD/GBP) exchange rate slipped from its weekly highs as investors digested Britain’s latest Consumer Price Index (CPI) report.
Last Friday saw AUD/GBP briefly touch on its worst levels in months, 0.5562, but the pair ultimately ended the week higher in the region of 0.5653.
The pair attempted to continue its recovery on Monday, hitting a weekly high of 0.5688 on Tuesday morning. However, after Britain’s January inflation results were published the Pound (GBP) became more appealing.
January’s UK inflation results came in higher than expected in all major prints. The month-on-month figure was forecast to have come in at -0.6% but instead only fell to -0.5%.
The yearly figures were even more impressive. Yearly inflation was forecast to have slipped slightly to 2.9%, but remained at a strong 3.0%.
UK core inflation was even more surprising, climbing from 2.5% to 2.7% and beating the forecast 2.6%.
The data indicated that inflation was seeing more domestic pressure, rather than just being strong due to the value of the Pound impacting imports.
Typically this would lead to a rise in Bank of England (BoE) interest rate hike bets, but the Pound’s gains against the Australian Dollar (AUD) were limited due to uncertainty around the Brexit process.
Australian Dollar (AUD) Exchange Rates Supported by Australian Business Confidence
While the Pound held against the Australian Dollar’s recovery attempts on Tuesday, the ‘Aussie’ could have been even weaker if not for the latest supportive Australian data.
Australia’s January business confidence survey from NAB were published during Tuesday’s Asian session and beat expectations.
Analysts predicted that the print would slow to 10. While the previous figure was actually revised lower, from 11 to 10, the January print came in at a solid 12.
On top of the higher domestic business confidence data, the Australian Dollar was supported by global risk-sentiment.
As equity markets cooled from last week’s brief selloff in stocks, investors returned to risk-correlated currencies like the Australian Dollar.
However, the Australian Dollar’s strength has been limited with markets still more on the cautious side. As a result, AUD/GBP fluctuated on Tuesday rather than continuing its recovery.
Brexit Uncertainties Weigh on Pound (GBP) and Bank of England (BoE) Bets
The Pound has been unable to capitalise on the recent rise in Bank of England (BoE) interest rate hike bets, as markets remain uncertain about Britain’s economic outlook and how it may be impacted by the Brexit process.
Over the past week, concerns have risen that a post-Brexit transition period may not be a done deal after all, as EU chief negotiator Michel Barnier has warned that certain parts of the agreement would be non-negotiable.
As the Bank of England has already predicted that UK inflation would remain strong but has indicated that a faster pace of interest rate hikes depends on how Brexit negotiations unfold, the Pound has remained pressured by Brexit uncertainty.
Australian Dollar to Pound (AUD/GBP) Forecast: Key Australian Data Ahead
Influential Australian ecostats will be published on Wednesday and Thursday, which could influence movement in the Australian Dollar to Pound (AUD/GBP) exchange rate towards the end of the week.
Westpac’s February consumer confidence survey for February will be published during Wednesday’s Asian session, followed by Australia’s vital January job market results on Thursday.
If these datasets impress, they could make the Australian Dollar more appealing and help the currency to sustain a recovery against the Pound.
However, if Australian data disappoints AUD/GBP could remain fairly close to its worst levels.
UK retail data will be published on Friday, but Pound investors are more likely to focus on Brexit. Any news from UK or EU officials about the tone that UK-EU transition and trade talks could take may have an impact on the Pound outlook.
Equity market news could also continue to influence AUD/GBP trade. If concerns remain that stocks could fall again, investors may hesitate to buy risky currencies like the Australian Dollar.