Although UK inflation held steady at 2.3% on the year in March this was not enough to encourage particular confidence in the Pound.
Coupled with a sharp contraction in the latest British Retail Consortium like-for-like sales the continued strength of inflation raised concerns over the resilience of domestic consumers.
As high levels of consumer spending were responsible for much of the economy’s health in the wake of the Brexit vote any signs of an increasing earning squeeze bodes ill for the general outlook.
With the Bank of England (BoE) having already warned that it is prepared to look through some degree of inflationary pressure investors saw little cause for encouragement.
Further volatility could be to in store in response to Wednesday’s labour market data, especially if the earnings figures show a fresh loss of momentum.
Weaker wage growth is likely to lead to a further contraction in retail sales and consumer spending, adding to fears that the UK economy is suffering a slowdown even before Brexit discussions formally begin.
Given that BoE policymakers want to see a pick-up in wage growth before committing to higher interest rates, the Pound Australian Dollar exchange rate could extend its recent losses in the event of a disappointing result.
However, if the data shows an upside surprise then Sterling could see a sharp increase in demand.
Rising geopolitical tensions over Syria have helped to keep the Australian Dollar on a softer footing this week.
While the ANZ Roy Morgan weekly consumer confidence index picked up strongly on Tuesday morning this was not enough to shore up the antipodean currency.
As David Plank, Head of Australian Economics at ANZ, noted:
‘Ongoing elevated unemployment and persistent weakness in wage growth, however, will continue to weigh on consumer confidence in our view. While last week’s pick-up in sentiment is encouraging, we remain of the view that spending growth is likely to remain constrained in a low wage environment, consistent with the recent softness in retail sales.’
Confidence in the ‘Aussie’ is likely to remain weak ahead of the latest raft of Australian labour market data, with investors nervous of the notoriously volatile report.
Even so, if full-time employment shows signs of picking up further on the month this could offer some encouragement to the Australian Dollar.
The Australian consumer inflation expectation for April may also put downside pressure on the GBP AUD exchange rate, with a higher reading giving the Reserve Bank of Australia (RBA) greater incentive to remain on hold.
At the time of writing, the Pound Australian Dollar exchange rate was trending narrowly at 1.65. Meanwhile, the Australian Dollar Pound exchange rate was on a modest downtrend around 0.60.
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