Pound Australian Dollar Exchange Rate Slumps on Surprise UK Manufacturing PMI Weakness
A surprisingly weak UK manufacturing PMI encouraged the Pound to Australian Dollar (GBP/AUD) exchange rate to return to a slump.
Investors were not impressed to find that growth in the UK manufacturing sector had fallen to a seventeen-month low in April, extending the trend of weakness seen in the first quarter.
Pound (GBP) exchange rates naturally came under pressure as a result of the weaker data, with confidence in the domestic outlook declining further.
Rob Dobson, Director at IHS Markit, noted:
‘While adverse weather was partly to blame in February and March, there are no excuses for April’s disappointing performance, making the chances of a near term hike in interest rates by the Bank of England look increasingly remote.
‘On this footing, the sector is unlikely to see any improvement on the near-stagnant performance signalled by the opening quarter’s GDP numbers.’
Upbeat RBA Comments Dent Pound Australian Dollar (GBP/AUD) Exchange Rate
The Pound to Australian Dollar (GBP/AUD) exchange rate did not find any particular support on the back of the Reserve Bank of Australia’s (RBA) May policy meeting.
As the RBA’s decision to leave interest rates on hold for a nineteenth consecutive meeting came as no surprise the downside pressure on the Australian Dollar (AUD) was limited.
However, as the tone of the latest comments from policymakers proved a little more upbeat in nature this encouraged AUD exchange rates to push higher on Tuesday morning.
Markets were also reassured by the Trump administration’s decision to exempt Australia from its steel and aluminium tariffs, boosting domestic optimism.
Although the threat of a US-China trade war still lingers this was not enough to keep AUD exchange rates under pressure at this stage.
Even so, any fresh flare up in international trade tensions could offer the GBP/AUD exchange rate a rallying point.
GBP/AUD Exchange Rate Weakness Forecast on Softer UK Services PMI
Further weakness could be in store for the Pound to Australian Dollar (GBP/AUD) exchange rate if April’s UK construction and services PMIs also fall short of forecast.
Signs of slowness within the service sector would offer particular concern to investors, given that the sector accounts for more than three quarters of UK economic activity.
While forecasts point towards a solid uptick in the services PMI, from 51.7 to 53.5 on the month, the figure looks vulnerable to a downside surprise.
If the UK economy shows signs of losing additional momentum at the start of the second quarter the odds of an imminent Bank of England (BoE) interest rate hike are likely to diminish further.
On the other hand, any demonstration of resilience from the domestic economy could help to limit the weakness of GBP exchange rates in the near term.
Brexit-based jitters and a sense of political uncertainty are likely to keep the Pound to Australian Dollar (GBP/AUD) exchange rate under pressure over the coming days, however.
Comments are closed.