The GBP AUD exchange rate was lower by -0.20% despite weaker consumer confidence figures from Westpac. A separate report from ANZ also showed that consumers were gloomy about the coming months due to rising inflation and the Reserve Bank’s interest rate hikes.
The pound to Australian dollar rate was trading at 1.7410 as the pound sterling nears the lows of April and May.
Consumer confidence drops to recessionary levels
The Westpac consumer confidence measure slipped for a seventh straight month to hit pandemic lows in June after the recent inflation surge and interest rate hikes.
The Westpac-Melbourne Institute Index of Consumer Sentiment on Wednesday dropped to 86.4. A separate weekly survey from ANZ bank also highlighted a gloomy outlook with a 7.6% fall to the lowest since the pandemic began. Without the pandemic drop, the index was the lowest since the 1990s recession.
Last week saw the Reserve Bank of Australia hiking rates by a larger than expected 50 basis points to 0.85%, with analysts awaiting more action in the future.
“Our survey detail shows a clear picture of a slump in sentiment being driven by rising inflation; an associated lift in interest rates; and a loss of confidence around the economic outlook, both here and abroad,” said Westpac’s Chief Economist Bill Evans.
“The RBA needs to normalise policy quickly to begin to address this very disturbing challenge. Another 50bps in July will be a further decisive step in this process,” Mr Evans added.
Australian consumers are facing headwinds with rising petrol prices, housing and food. Consumers are fearful over the next 12 months in the economy and that could weigh on retail sales figures in coming months.
Bank of England faces pressure to hike rates again
Weakness in the pound sterling and aggressive action from its US counterpart has put pressure on the Bank of England to follow suit on interest rates.
That will not be an easy decision after the country’s growth figures unexpectedly dropped in Monday’s latest figures. In a Reuters’ poll, 55 of 56 economists expect the Bank to raise interest rates on Thursday to 1.25% from 1.0%, but some are wary of a 0.50% hike.
Yesterday’s employment figures were also robust and that means that a rate hike is more probable. The disappointing part of the jobs number was a drop in real wages and the BoE is likely to take action to cool inflation’s effects on wage growth.
The Reserve Bank of Australia went for a 0.50% hike and the pound sterling is also seeing weakness against the Aussie dollar.
Brexit-related tensions are another reason for recent bearishness in the pound with the ongoing Northern Ireland protocol issue weighing on sentiment. Prime Minister Boris Johnson was set to face PMQs on Wednesday after the recent publication of the N.I. Protocol Bill with a renewed threat of a legal response from the EU. Johnson has likely ruffled some feathers with a statement that the bill, which seeks to amend the protocol, was “not a big deal”.
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