GBP to AUD rate rises despite falling UK inflation

Australian Dollar Weakens as Unemployment Increases Down Under, What Next for GBP/AUD?

UK inflation rate falls to Bank of England target

Yesterday morning, the Office for National Statistics reported that Britain’s inflation rate has fallen. The Consumer Prices Index rose by 2.0% in the 12 months to May, down from 2.1% in April and back to the Bank of England’s (BoE) target. Speculation that the BoE will raise interest rates – a favourable outcome for the pound – ensued, but ongoing Brexit uncertainty is likely to scupper any such plans.

Despite an easing in inflation on the year, the pound (GBP) to Australian dollar (AUD) rate edged higher yesterday morning. This positive sentiment towards the pair was inspired by hopes of a more resilient second-quarter economic performance, as UK average earnings continue to comfortably outpace inflation.

The AUD was hamstrung by mounting speculation that the Reserve Bank of Australia will cut interest rates as low as 0.5 per cent to revive the struggling economy. Meanwhile, the BoE, buoyed by the UK’s improving wage growth data and robust inflation dynamics, isn’t expected to adjust interest rates any time soon – contrasting stances that gave the GBP to AUD pair further support.

And then there were four

Most markets appear to have priced in the potential for Boris Johnson – the clear frontrunner in the Conservative leadership contest – to prove a hard Brexit leaning prime minister, which is keeping levels suppressed. However, the GBP/AUD pair has managed to stave off the renewed risk of a no-deal, due to economic weakness Down Under.

The Boris Johnson factor was in full swing again yesterday, following the third round of voting in the race to number 10. Mr Johnson comfortably led the pack once more with 143 votes – 17 more than last time – while Rory Stewart was eliminated, having failed to win the required number of votes to proceed. Four men remain in the race to be next prime minister: Boris Johnson, Jeremy Hunt, Michael Gove and Savid Javid.

Looking ahead

The fourth and fifth ballot of Conservative MPs takes place today, with the candidate with the fewest votes eliminated each time. If required, a further ballot will be held tonight or tomorrow to decide the final two candidates the Tory party membership will choose from to replace Theresa May as prime minister.

Several releases from the BoE this afternoon – BoE Asset Purchase Facility and BoE Interest Rate Decision – are rounded off by the Monetary Policy Committee monthly interest rate decision and the bank’s meeting minutes.

The week concludes tomorrow with the release of Australian Manufacturing and Services PMIs and UK Public Sector Net Borrowing for May. If you have an upcoming currency exchange transfer and would like to discuss exchange rates, please feel free to contact me directly using the form below.