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GBP/AUD Slips from Three-Week High as UK Inflation Disappoints

GBP/AUD Exchange Rate Muted as UK Inflation Misses Expectations

The Pound Australian Dollar (GBP/AUD) exchange rate is stuck in a narrow range this morning, in response to a weaker-than-expected CPI release from the UK.

At the time of writing the GBP/AUD exchange rate is currently trading at around AU$1.8218, virtually unchanged from the morning’s opening levels but down from a high of AU$1.8259.

UK Inflation Slows, BoE Rate Decision to Come

The Pound (GBP) is facing headwinds this morning as markets react to the UK’s weaker-than-expected consumer price index (CPI).                        

According to data published by the Office for National Statistics (ONS), UK inflation slowed from 2.1% to 1.7% in August, missing expectations for a modest slide to 1.9% and falling to its worst levels since December 2016.

The drop in inflation is welcome news for consumers, as combined with the recent surge in wage growth, which struck 4% in July, consumer spending power is on the rise.

However, the slump in inflation could put more pressure on the Bank of England (BoE) to consider lowering interest rates.

The BoE will conclude its latest policy meeting tomorrow, and while no policy changes are expected from the bank this month, could the slowdown in inflation push the BoE towards lowering interest rates after Brexit?

Could a Rise in Unemployment Prompt another Rate Cut from the RBA Next Month?

Coming up later tonight the publication of Australia’s jobs report could see the Australian Dollar (AUD) continue to give ground.

Data published by the Australian Bureau of Statistics (ABS) is expected to report unemployment rose from 5.2% to 5.3% in August as employment growth slowed from 41,100 to just 10,000.

The Reserve Bank of Australian (RBA) has repeatedly stressed that it views domestic labour figures as a key gauge of the health of the Australian economy.

Another rise in unemployment is likely to put more pressure on the RBA to continue easing monetary policy, with the minutes from the bank’s most recent policy meeting appearing to leave the door open for an October cut.

Commenting on the minutes Bill Evans, analyst at Westpac, suggested:

‘The minutes make a fairly clear case for another rate cut in 2019. The minutes warn, “developments in the international and domestic economies, including the labour market” will be assessed to see whether a further easing of policy is “needed”.

‘Westpac continues to predict cuts in the cash rate of 25 basis points in both October and February next year.’