The Aussie rallied against the pound yesterday following reports of overwhelmingly positive building approvals data for December. The Bank of England’s weak economic outlook for the UK, albeit better than earlier forecast, fueled the pound’s sell-off. Overall, the GBP/AUD pair declined from a high of 1.7369 to a low of 1.7220 in the last 24 hours.
According to the Australian Bureau of Statistics, the country’s building approvals surged 18.50% m-o-m in December following an 8.80% decline in the previous month and blew away forecasts of a 1.10% growth.
The trend estimate for cumulative dwellings approved declined by 0.40% in December, following a 0.80% fall in November.
Furthermore, private sector house approvals declined 2.30% in December to 8,903 units, following a 2.50% fall in November. Specifically, private sector dwellings, devoid of houses approved, jumped 56.60% in December, following a 21.80% drop in November.
The trend estimate for private sector house approvals declined 2% in December, following a 2% drop in November.
The value of cumulative total building approvals increased by 3% in December, following a 0.60% drop in the prior month. The value of cumulative residential buildings increased by 6.60% while the value of non-residential buildings declined by 1.70% in December.
The trend estimate for the value of total buildings approved inched up 0.60% in December, matching the growth in the earlier month.
In the European session, the Bank of England announced a 50 basis point rate hike, in line with analysts’ expectations. Specifically, the Monetary Policy Committee supported the second 50bps rate hike by a 7-2 vote. Two members preferred no change to the cash rates. Following the 10th successive rate hike, the new benchmark interest rate is 4%.
Notably, the BoE cautioned that further rate hikes could be smaller ones and that an end to the rate hike cycle may be contemplated, if necessary.
The central bank also surprised the market by canceling a portion of its gloomy economic forecasts.
By the end of this year, the BoE expects consumer price inflation to decline to about 4%. Inflation hit 10.50% in December, reflecting a slight decline from the 41-year high of 11.10% in October and 10.70% in November.
Also, the central bank now anticipates the UK economy to contract slightly in 2023 and in the first quarter of 2024, primarily due to high energy prices and interest rates leading to weak consumer spending. Notably, the UK’s economy unexpectedly expanded by 0.10% in November and also surpassed forecasts in October. Economists believe that the forecast recession will not be deep as anticipated earlier.
According to the latest BoE assessment, the UK’s economy is expected to contract for five successive quarters, beginning with the first quarter of 2023. Two consecutive quarters of economic contraction are referred to as a recession.
In particular, the BoE expects the GDP to decline by 0.50% in 2023 and by 0.25% next year. The economy is expected to grow by 1% in 2025. Also, the rate of unemployment is anticipated to hit 5.25% in 2023, considerably lower than the 6.5% predicted earlier.
Interestingly, the IMF expects the UK’s economy to contract by 0.60% in 2023 but expects the economy to expand by 0.90% (upwardly amended from 0.60%) in 2024.
The upbeat Australian building approvals data and the weak UK economic outlook are expected to keep the GBP/AUD pair slightly bearish in the short term.
The historical price chart indicates that the GBP/AUD pair is declining after facing resistance at 1.7480. The next support is anticipated only near 1.6940. Additionally, the currency pair is trading below its 50-day moving average while the stochastic indicator is in the bearish zone. Therefore, we anticipate the GBP/AUD pair to remain in a downtrend in the short term.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
