GBP/AUD Exchange Rate Steady on Surprise Acceleration in Inflation
The Pound to Australian Dollar (GBP/AUD) exchange rate is holding its ground this morning as the UK’s consumer price index revealed a surprise uptick in inflation last month.
At the time of writing the GBP/AUD exchange rate is trading at around AU$1.8001, virtually unchanged from this morning’s opening rate.
Pound (GBP) Earns Temporary Reprieve as Inflation Rises
The Pound (GBP) is holding its ground this morning in response to the UK’s latest CPI figures.
According to data published by the Office for National Statistics (ONS) UK inflation accelerated from 0.5% to 0.6% in June, beating forecasts it will continue to slow to 0.4% and rising for the first time in 2020.
The welcomed uptick in inflation was largely attributed to rising prices for clothes and video games.
However, Sterling’s gains this morning have been tempered by suggestions the rise in inflation is likely to prove temporary as retailers are forced to slash prices in order to attract cautious consumers.
Paul Dales, Chief UK Economist at Capital Economics, comments:
‘Inflation in all major core categories except restaurants and hotels fell, with the increase in clothing inflation and the rise in recreation and culture inflation making the largest contributions. We are not convinced either will be sustained.
‘We suspect that after the initial release of pent up demand once non-essential retailers opened in mid-June, retailers will have to use heavier discounts to get people through the doors.’
Should inflation begin to slow again its likely to put more pressure on the Bank of England (BoE) to begin explore unconventional monetary policy measures such as negative interest rates.
Rising Unemployment to Undermine the Australian Dollar (AUD)?
Meanwhile, the Australian Dollar (AUD) is finding support this morning from positive headlines regarding a possible coronavirus vaccine.
However the ‘Aussie’ looks poised to retreat later tonight, with the publication of Australia’s latest jobs report.
Economists forecast June’s figures will show that the domestic unemployment rate rose from 7.1% to 7.4%, the highest levels in 20 years.
While these may be tempered by accompanying figures, revealing that employment growth actually improved last month the surge in unemployment is likely to prove problematic for the Reserve Bank of Australia (RBA).
Should unemployment continue to surge it may force the RBA into slashing interest rates even further in an effort to support Australia’s economy.
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