The British pound is higher against the Australian dollar on Wednesday with the British currency staging a comeback after UK inflation data missed expectations. The Aussie dollar was under pressure, alongside other asset prices tied to China after it emerged the US will maintain its current tariffs until November. US President Trump and Chinese vice premier Liu He are set to sign the agreement at the White House later today.
GBP/AUD was higher by 33 pips (+0.17%) to 1.8897 as of 2pm GMT, close its highs of the week but still in the bottom half of its 5-day price range. Sterling gave up early gains versus the Aussie on Wednesday after the weak UK data but rebounded thereafter in choppy trading. The British currency is attempting to reverse a string of daily losses as markets weigh up the rising chance of a UK rate cut.
The pound
UK price growth slowed across the economy in December according to data released on Wednesday. Weaker inflation is adding to the increasingly loud calls by policymakers at the Bank of England to cut interest rates to sure up the economy. Growth in the Consumer Price Index (CPI) expanded by only 1.3% year-over-year in December, well below forecasts of a 1.5% y/y rise, the same as in November.
Michael Saunders became the third central banker in four days to call for lower interest rate in Britain in a speech on Wednesday. Sanders said it was probably appropriate to cut UK interest rates, although it is not the first time he has said so. Saunders has switched from calling for tighter monetary policy to a looser policy in recent weeks as data from the United Kingdom softened.
The Australian dollar
Reports that tariffs against China will remain for another ten months until November were confirmed by US Treasury Secretary Steve Mnuchin. Any reduction in tariffs will be part of a phase two deal if it is agreed after the US election. It had been hoped that lower tariffs against China would improve growth prospects, not only in China but across the region, especially with large trading partners like Australia. A standstill in the US China trade war does reduce uncertainty but perhaps expectations were a little misguided about the positive boost it could give the global economy.
