Solid UK GDP Estimate Failed to Boost Sterling Outlook
In spite of the NIESR gross domestic product estimate pointing towards solid economic growth of 0.5% in the three months to December, this was not enough to prompt a rally for the Pound Australian Dollar (GBP AUD) exchange rate. While the mood towards Sterling improved in response to some solid trading results from major UK retailers on Thursday it was unable to make gains against its commodity-correlated rivals.
Rising iron ore prices and the weakness of the US Dollar (USD) have helped to boost the Australian Dollar (AUD) against many of the majors this week. Risk appetite has been generally heightened by signs of growing inflationary pressures within the Chinese economy, boding well for a more sustained increase in commodity prices. Although the details of president elect Donald Trump’s economic plans remain vague, the prospect of increased US infrastructure spending is continuing to underpin the recovery in base metals, to the benefit of the ‘Aussie’.
GBP AUD Exchange Rate Forecast: Brexit Worries to Maintain Pound Downside
Speculation over the UK’s future relationship with the EU is likely to dominate the outlook of the Pound over coming weeks, particularly if the government remains evasive over the details of its plan for negotiations. While the economy has held up well in the months following the referendum the negative impact of the vote is likely to begin to increasingly bite as price pressures rise and the triggering of Article 50 approaches.
As Tim Riddell, research analyst at Westpac, noted:
‘The growing likelihood of difficult Brexit negotiations will depress confidence, increase uncertainty and undermine already weak investment intensions. Additionally, GBP’s post Brexit-vote fall is now seeing higher import prices feed into high street inflation, as widely forecast. Reduced discretionary income effects will lower domestic activity.’
The ‘Aussie’ could see some volatility ahead of the weekend thanks to the release of US advance retail sales and University of Michigan confidence index figures. If both provide further evidence of the robustness of the world’s largest economy then risk appetite could diminish sharply, given the high odds of the Federal Reserve raising interest rates in the near future. On the other hand, if this data disappoints then the GBP AUD exchange rate could extend its slump further thanks to buoyant commodity prices.
Current Interbank Exchange Rates
At the time of writing, the Pound Australian Dollar (GBP AUD) exchange rate was trending lower around 1.63, while the Australian Dollar Pound (AUD GBP) pairing was making gains in the region of 0.6106.
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