February 23, 2021 – Written by Frank Davies
Pound (GBP) Exchange Rates Strengthen in Spite of Rising UK Unemployment Rate
The Pound to Australian Dollar (GBP/AUD) exchange rate strengthened in spite of an increase in December’s UK unemployment rate.
Although unemployment picked up from 5% to 5.1% at the end of 2020 this was not enough to drag the Pound lower across the board today.
This increase was largely anticipated by markets, limiting the negative impact of the data release even as worries over the health of the UK labour market picked up.
With economists forecasting that unemployment could rise as high as 6.5% in the months, driven by the prolonged current national lockdown, the Pound could struggle to hold onto a positive footing in the days ahead.
A lack of fresh UK data releases over the remainder of the week could also leave the GBP/AUD exchange rate vulnerable to a renewed sense of selling pressure.
Australian Dollar (AUD) Exchange Rates Soften as Risk Appetite Fades
Support for the Australian Dollar generally weakened on Tuesday as the earlier sense of market risk appetite faded.
With base metal prices failing to hold onto their earlier surge in value the appeal of the risk-sensitive Australian Dollar weakened.
While the Chinese housing market showed fresh signs of strength this was not enough to shore up AUD exchange rates, in spite of their close correlation to sentiment over the Chinese economy.
Anticipation ahead of the latest commentary from Federal Reserve Chair Jerome Powell also helped to limit market confidence.
As investors expect to see another dovish performance from the policymaker, with the Fed likely to keep monetary policy loose for the foreseeable future, the Australian Dollar could find a rallying point.
A dovish Fed would leave the US Dollar on a weaker footing against its rivals, encouraging markets to favour higher-yielding assets once again.
GBP/AUD Exchange Rate Forecast to Weaken on Stronger Australian Wage Price Index
Any improvement in the fourth quarter Australian wage price index may encourage the GBP/AUD exchange rate to push higher on Wednesday.
Evidence of improving wage growth would give investors greater cause for confidence in the outlook of the Australian economy.
As long as the economy can demonstrate sustained signs of shrugging off the ongoing impact of the Covid-19 crisis this may help to improve the appeal of the Australian Dollar.
A rebound in the fourth quarter construction work done index may also offer AUD exchange rates room to trend higher in the near term.
With no fresh UK data set for release ahead of Friday’s Nationwide housing price index the Pound could struggle to hold up in the face of any renewed Australian Dollar demand.
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