Uptick in UK GDP Not Enough to Lift Pound Sterling to Australian Dollar (GBP/AUD) Exchange Rate
July’s UK gross domestic product report was not enough to prevent the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate from taking a fresh leg lower this morning.
While growth clocked in at 6.6% on the month in July this still represented a loss of momentum on the previous month’s GDP, limiting support for Pound Sterling (GBP).
As the economy looks set to come under further pressure in the coming months, thanks to an increasing sense of risk ahead of the end of the Brexit transition period, reaction to the data proved muted.
In the wake of the EU’s ultimatum for the UK to remove parts of the proposed Internal Market bill within the next three weeks fears of a further breakdown in relations mounted.
With the risk of a no-deal scenario looking increasingly serious the Pound may struggle to return to a positive footing in the near future, barring any major breakthrough.
As John Hardy of Saxo Bank noted:
‘The situation is as serious as it has ever been because this time we are finally talking about the actual reality on the ground for the UK post-Brexit that will prevail in less than four months. Will realpolitik prevail and the two sides hammer out an amicable agreement, or is this a fight on principles that means both sides are willing to suffer significant damage to defend their principles?’
Australian Dollar Looks for Fresh Boost on RBA Meeting Minutes
Lingering market worries over the global recovery from Covid-19 and the threat of further economic disruption put a dampener on the Australian Dollar (AUD).
Increasing doubts over the sustainability of the initial economic bounce in the wake of pandemic disruption gave investors limited incentive to favour the risk-sensitive currency.
However, the release of the Reserve Bank of Australia’s (RBA) most recent set of meeting minutes could offer a boost to AUD exchange rates on Tuesday.
Fresh evidence of the central bank’s intent to leave monetary policy on hold in the near term may lift the Australian Dollar against its rivals.
Unless the minutes reveal a greater sense of uncertainty over the economic outlook the antipodean currency looks likely to trend higher in the wake of the minutes.
A solid Chinese industrial production reading for August could also put pressure on the GBP/AUD exchange rate, with a healthier Chinese economy boding well for the Australian outlook.
Rising UK Unemployment Rate Forecast to Add to Pound Weakness
Further losses could be in store for the Pound on Tuesday, meanwhile, if the latest set of UK labour market data fails to impress.
With forecasts pointing towards the unemployment rate pushing higher in July, in spite of the government’s furlough scheme, worries over the economy look set to pick up.
Another monthly decline in average earnings could equally put pressure on GBP exchange rates, with lower wages likely to translate into lower levels of consumer confidence and spending.
As the government prepares to wind down the furlough scheme imminently the threat of a sharper spike in unemployment may also cast a shadow over the Pound next week.