Pound-to-Australian Dollar Forecast: GBP Strengthens As Australian GDP Slows

The Pound to Australian Dollar (GBP/AUD) exchange rate strengthened over the past week as softer Australian growth data and fading Reserve Bank of Australia tightening expectations weighed on the ‘Aussie’.

At the time of writing, GBP/AUD was trading at AU$1.8845, up around 0.7% on the week.

DAILY RECAP:

The Australian Dollar (AUD) endured a volatile week as traders balanced shifting geopolitical developments with a disappointing domestic growth report.

Developments in the Middle East remained a major driver of sentiment, with investors reacting to changing expectations surrounding ceasefire negotiations and broader efforts to reduce tensions across the region.

However, the biggest blow to the ‘Aussie’ came from Australia’s latest GDP figures.

Data showed economic growth slowed sharply during the first quarter, missing market expectations and highlighting weaker consumer and business activity. Much of the expansion was attributed to private investment in data centres, raising concerns about the broader health of the economy.

The weaker growth backdrop prompted investors to further reduce expectations for additional Reserve Bank of Australia policy tightening this year.

While stronger trade figures later in the week offered some support, they were unable to fully offset the impact of the GDP disappointment.

Meanwhile, the Pound (GBP) enjoyed modest support after final UK PMI surveys were revised higher.

The latest manufacturing and services readings indicated that business activity weakened by less than initially feared during May, helping to ease concerns about the pace of the UK’s economic slowdown.

Nevertheless, Sterling struggled to build significant momentum later in the week as the domestic calendar became increasingly quiet, leaving the currency sensitive to broader market sentiment and geopolitical developments.

Near-Term GBP/AUD Forecast

Attention this week turns to the UK’s latest GDP figures, which could prove pivotal for Sterling.

Economists expect growth to have slowed sharply at the start of the second quarter following stronger readings earlier in the year. A weaker-than-expected result may prompt investors to further scale back expectations for future Bank of England policy tightening, potentially limiting Pound gains.

For the Australian Dollar, investors will focus on business and consumer confidence surveys.

Should these indicators show that households and firms remain cautious amid ongoing global uncertainty, the ‘Aussie’ could struggle to attract sustained support.

Market sentiment and developments in the Middle East are also likely to remain important drivers of GBP/AUD price action. Any improvement in risk appetite could help support the Australian Dollar, while renewed geopolitical tensions may favour the relative safety of Sterling.