UK Inflation Jumps to a Six-Month High but Fails to Push the Pound Higher against the Australian Dollar

Australian Dollar Forecast Set for Bleak End to 2020

Inflation figures from the UK in January rose at the fastest pace in six months, according to the latest release from the Office for National Statistics (ONS). Despite reaching a high around 1.9450, the GBP v AUD exchange rate slipped on the day to settle near 1.9400.

Consumer Prices Give Central Bankers a Boost

The ONS inflation figures for January were expected to show a rise in consumer prices from last month’s 1.3%, to 1.6%. The actual number was 1.8% and will come as a welcome development for the Bank of England after inflation had fallen since the beginning of 2018. With the UK economy bouncing back from the Brexit uncertainty, it’s possible that the C.P.I. index will get back above the 2.0% soon, which would boost the Pound exchange rate outlook.

Aussie Dollar Gets a Boost from Asian Markets

Australian wage growth overnight came in at 2.2% as expected so the AUD to GBP gains are likely being driven by growing optimism in Asian markets.
Stock indices in Japan, Hong Kong, and China ticked higher as the spread of new Coronavirus cases slowed and Japan posted better-than-expected export data. The number of virus cases dropped for a second consecutive day, with new cases falling to 2,000 per day.

In Japan, export data fell for the 14th month running and warnings were given that the virus would weigh on demand in the months ahead, however the 2.6% year-on-year drop in January was far better than the 7% fall that had been forecast.

In the UK this week carmaker Jaguar Land Rover had warned that their British production was at risk as they only had enough Chinese parts for the next two weeks. The slowing of new cases and the end of the Chinese New Year holiday will be a welcome boost for the company and will reassure investors that supply chains will weather the storm after Apple also sounded the alarm over suppliers. Among Apple’s 200 supplier companies, 75% of those had at least one production plant in China.

Markets will now be low on volatility until 7p.m. GMT when the US Federal Reserve releases its latest meeting minutes. The GBP v AUD sees another market-moving event overnight as the Australian employment figures are released with 10k new jobs being forecast.

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