GBP AUD Presses Recent Highs on GDP, Risk Woes

GBP AUD Presses Recent Highs on GDP, Risk Woes

The GBP AUD exchange rate was 0.83% higher on Thursday after UK GDP came in close to expectations for the recent quarter. Risk assets have been hit hard this week and the Australian dollar is suffering as a consequence.

The GBP to AUD trades at 1.7790 with the pair now pressing against the most recent highs near 1.7900. A move above that level will target 1.8100 in the weeks ahead.

UK economy shrinks in first quarter growth but still saw growth

The pound sterling outperformed the Aussie dollar as UK growth figures for the first quarter were released.

GDP fell by 0.1% in the month, which was worse than the 0% growth forecast, but not disastrous considering the backdrop of events. The country’s dominant service sector shrank by 0.2% in March and that was the key driver of the drop in March GDP.

Darren Morgan, director of economic statistics at the Office for National Statistics (ONS), said: “The UK economy grew for the fourth consecutive quarter and is now clearly above pre-pandemic levels, although growth in the latest three months was the lowest for a year.”

“This was driven by growth in a number of service sectors as the economy continued to recover from Covid-19 effects, including hospitality, transport, employment agencies and travel agencies. There was also strong growth in IT,” he added.

Chancellor Rishi Sunak said: “The UK economy recovered quickly from the worst of the pandemic and our growth in the first few months of the year was strong, faster than the US, Germany and Italy, but I know these are still anxious times.”

The economy is expected to slow down over coming quarters as the Bank of England looks to slam the brakes on runaway inflation. The reality is that the other developed nations are facing the same problems.

Australian election enters the closing stages, inflation still a risk for AUD

Sky News Business Editor Ross Greenwood said there is “no doubt” that recent US inflation figures could hint at what is to come for Australia in the months ahead.

“Here, the real problem is the mortgage sector,” he said.

“Just how high can you actually raise interest rates here in Australia without genuinely damaging the economy, damaging the household sector, damaging retail spending? If you damage consumer confidence, you damage a whole lot of the recovery that’s taking place right now in our economy as well.”

The UK economy is also currently dealing with that issue as the BoE embarks on a mission to cool the rising price pressures.

In Australia, the election race enters the closing stages for the May 21 vote, with Labor and the incumbent government trading blows over spending.

The Australian dollar was also hurt by rising pressure on risk assets as stocks slumped again this week. The souring picture for growth puts a headwind in place for Australia’s economy which relies on positive outlook for construction and housing markets to find buyers for its commodity exports.