GBP AUD Pressures the 1.7800 Level Once More 

GBP EUR Exchange Rate: Weekly Review July 16  

The GBP AUD exchange rate was 0.40% higher on Monday as traders react to stronger than expected iron ore prices for the Aussie economy. The near-term ore prices were helpful to the economy down under but will add volatility. 

The GBP to AUD rate has the key 1.7800 level in sight. A move above that level could spark a recovery in the sterling Aussie pair. 

Fuel prices touch another record high in the UK as strains hold 

Fuel prices continue to weigh on the UK economy with another record high for petrol pump prices. 

The latest figures from the pump showed the average price for 1 litre of unleaded fuel in the UK hit 191.05p on Sunday, with diesel reaching a new peak at 199p. 

A spokesman for the RAC motoring group said: “We are struggling to see how retailers can justify continuing to put up their unleaded prices as the wholesale cost of petrol has reduced significantly.” 

“This is sadly a classic example of ‘rocket and feather’ pricing in action, and one which the Competition and Markets Authority will no doubt be looking at very closely,” they added. 

Retailers may make matters worse “by not lowering their forecourt prices despite having a clear opportunity to do so.” The groups said record petrol prices could stifle summer staycations as airports struggle and diesel prices “hit industry and haulage and fuel inflation.” 

The current problems are another weight on the shoulders of the travel sector which hoped for a rebound from the pandemic lockdowns. Flights decreased in the eurozone. Furthermore, train travel in the UK fell from recent rail strikes. The euro saw buyers despite the energy outlook which risks creating a winter crisis for the EU. 

Iron ore price volatility is a risk for the Aussie dollar 

Australia’s economy got a boost from high iron ore prices as the budget deficit was cut in half. However, a recent slump risks further volatility in the Australian economic outlook. 

Chinese demand is the headline risk and steel mill margins are under pressure in the country and close to zero. An index of Chinese steel profits has plunged by almost 90%. Ore prices saw a meagre 2.7% gain last week after seeing a sharp drop of over 20%. China experienced  a collection of problems mounting with pandemic restrictions, a slowdown in construction, rising steel inventories, and weaker profits at mills. 

The other big problem for demand is the property sector in China, having not fully recovered from last year’s gains. The sector makes up 40% of the country’s steel demand but economic uncertainty weighs on the housing market. 

For steel mills suffering zero margins, the only option is to shut down production in order to avoid further losses. Chinese President Xi Jinping committed to further measures to boost the country’s economy. This helped the price of ore to make a small rebound. 

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