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GBP/AUD to Weaken amid UK Service Contraction Confirmation?

Pound Australian Dollar Currency Forecast

Pound Australian Dollar (GBP/AUD) Exchange Rate Narrows amid Cheery Market Mood

The Pound Australian Dollar (GBP/AUD) is trading within narrow boundaries this morning, owing to an optimistic market mood.

At the time of writing, GBP/AUD is trading at around AU$1.9535, showing little movement from the morning’s opening rates.

Will Confirmation of Service Sector Contraction Dent GBP?

Over the course of today’s session, the Pound (GBP) may want for clear direction due to a lack of data releases.

Because of this, Sterling is likely to be left exposed to analysis of the UK’s economic health. With recent headlines painting a deteriorating picture, GBP may lack support. However, due to Sterling’s increasingly risk-sensitive nature, a shift to risk-on trade may bring strength to GBP rates.

Tuesday brings the final print of the service sector index for August. Preliminary readings indicated a shock fall in activity across the sector, which weighed heavily on Sterling by indicating continued economic slowdown.

If this reiterates that the vital sector has contracted, GBP could weaken as investors continue to grow concerned over the UK’s economic outlook.

Furthermore, this could lead to a paring back of bets on further interest rate hikes from the Bank of England (BoE). While inflation remains high in the UK compared to other G7 territories, the economy appears to be on a knife edge. Further hikes could push the UK into recession.

Could a Hawkish Hold Boost AUD?

The Australian Dollar (AUD) may see largely directionless trade over the rest of today’s session, due to a lack of impactful data across the markets.

Because of this, the risk-sensitive ‘Aussie’ will be left vulnerable to shifts in market dynamics. While a shift towards bullish trade could bring support to AUD, the lack of data catalysts may limit any potential gains.

Overnight, the ‘Aussie’ may experience volatile trade due to two key data releases. Firstly, the latest Caixin services index is due to print. Activity in the sector is forecast by economists to have decreased somewhat, which could put pressure on the Chinese proxy-currency.

This is swiftly followed by the Reserve Bank of Australia’s (RBA) latest interest rate decision. The RBA are expected by markets to keep interest rates held at 4.1%, which could dent the ‘Aussie’.

However, if they accompany the decision with hawkish forward guidance, AUD rates may strengthen as investors bet on additional tightening in the future.

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