The British economy is showing clear signs of strain, while Australia demonstrates relative resilience. As a result, GBP/AUD may continue to decline in the near term.

Fundamental Analysis

The United Kingdom’s economic outlook has weakened further based on the latest data.
GDP growth for the latest quarter stands at a marginal 0.1 percent, with annual growth at just 1.5 percent. Services PMI has fallen into contraction territory at 48.9, and consumer confidence remains deeply negative at -23. Inflation remains sticky at 2.6 percent, complicating monetary policy as the Bank of England struggles between slowing growth and persistent price pressures.

The labour market shows initial signs of softening, with unemployment ticking up to 4.4 percent. Retail sales growth is sluggish, and the business sentiment surveys continue to deteriorate, reflecting a broad-based slowdown in economic momentum.

By contrast, Australia’s latest economic data suggests modest but stable performance. Quarterly GDP growth is 0.6 percent, with annual growth at 1.3 percent. The labour market remains healthy with unemployment at just 4.1 percent. Inflation has moderated to 2.4 percent year-on-year, easing cost pressures without signalling major demand destruction.

The Reserve Bank of Australia remains more balanced in its policy approach, whereas the Bank of England is increasingly expected to cut rates before the end of 2025.
The relative fundamental backdrop favours the Australian dollar over the British pound.

Technical Analysis

On the daily chart, GBP/AUD maintains a short-term bullish structure but with clear signs of weakening momentum.

The Ichimoku Cloud shows that the price is currently trading above the Kumo, which confirms a bullish bias. However, the price is hovering near the Conversion Line (Tenkan-Sen) at 2.08249, suggesting vulnerability to a pullback. A confirmed daily close below this level would likely signal a deeper correction toward the base of the cloud.

The RSI stands at 55.90 and is declining, signalling fading bullish momentum. The MACD lines are converging and flattening, with the histogram close to turning negative, indicating that bullish momentum is weakening further.

Volume analysis shows declining participation on recent rallies, adding to the probability of a downside reversal.

Price action reveals a series of lower highs after a strong uptrend, suggesting early signs of distribution rather than accumulation.

Sentiment Analysis

Investor sentiment towards the British pound has deteriorated in recent weeks.
Commitments of Traders data indicate that speculators are beginning to unwind long GBP positions. In contrast, Australian dollar sentiment has stabilised, with net short positions declining as Australia’s relative macro performance improves.

Options markets show a slight skew towards GBP downside risk, reflecting hedging activity among institutional players.
Global risk sentiment, which has turned slightly more risk-on with stabilising global growth, tends to favour commodity-linked currencies like the Australian dollar over developed economy currencies like sterling.

Conclusion

The outlook for GBP/AUD points to a potential downside move.
The UK economy faces stagflation risks with slowing growth and persistent inflation, while Australia shows more balanced fundamentals.
Technical momentum indicators also suggest a loss of upside strength, and sentiment is shifting against GBP.

A confirmed daily close below 2.08249 would reinforce the bearish case and open up room for a deeper correction.

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