Sterling Slips Below AU$2.00 Amid Diverging Outlooks

Key Moments

Spot Exchange Snapshot

Sterling Undermined by UK Growth Concerns

The Pound to Australian Dollar (GBP/AUD) exchange rate fell below the AU$2.00 mark last week. Renewed concerns about the UK’s economic outlook reduced demand for Sterling.

At the start of the week, the Pound (GBP) traded unevenly. In particular, survey data showed weaker business confidence across the UK. In addition, reports suggested that many retailers saw disappointing Christmas sales. As a result, confidence in near-term economic growth faded.

Sterling remained under pressure into midweek. Comments from Bank of England policymaker Alan Taylor added to uncertainty. He suggested that further interest rate cuts may be needed this year. At the same time, he noted that borrowing costs are close to their “neutral” level. Consequently, markets were unsure how far the Bank might ease policy.

Later in the week, pressure on the Pound increased following the release of fresh GDP data. Official figures showed the UK economy grew by 0.3% in November, beating expectations. However, analysts quickly pointed out that much of the growth came from temporary factors. These included the reopening of Jaguar Land Rover’s factory.

Because of this, economists warned that the rebound may not prevent overall stagnation in the fourth quarter. As a result, Sterling weakened against a broad range of currencies. This selling pressure pushed GBP/AUD below the key psychological level of AU$2.00.

Australian Dollar Finds Support from China and Inflation Expectations

The Australian Dollar (AUD) started the week on a softer footing. It reacted to an unexpected drop in domestic consumer confidence, which briefly hurt sentiment.

However, the tone soon improved. As the week progressed, the “Aussie” recovered following strong Chinese trade data. In particular, solid Chinese import growth boosted risk appetite. Since China is Australia’s largest trading partner, this improved confidence in Australia’s export outlook.

Later on, the AUD received further support from rising Australian inflation expectations. This development strengthened speculation that the Reserve Bank of Australia (RBA) could still consider an interest rate hike later this year. Consequently, demand for the currency increased.

Near-Term GBP/AUD Outlook: UK Data and Labor Figures in Focus

Looking ahead, the Pound to Australian Dollar exchange rate may remain volatile. Investors will be watching several high-impact UK data releases closely.

Key reports on employment and inflation are due next. Forecasts suggest wage growth may slow, while inflation pressures could ease. If the data meet these expectations, it may reinforce bets on further Bank of England rate cuts. In turn, this would likely keep Sterling under pressure.

Meanwhile, attention will also turn to Australia’s upcoming labor market report. Economists expect employment growth to rebound after a weak November. However, a rise in unemployment could dampen optimism. If that happens, expectations for an RBA rate hike may ease, limiting gains for the Australian Dollar.