UK Gross Domestic Product Beats Forecasts to Boost Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate
A better-than-expected reading from May’s UK gross domestic product data saw the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate recover some of its lost ground on Wednesday.
As forecasts had pointed towards the growth rate easing to just 0.1% in the three months to May investors were encouraged to find that it had instead clocked in at 0.3%.
This suggests that the UK economy was better able to shrug off political anxiety and Brexit-based disruption in May, limiting the odds of a second quarter slowdown.
However, Pound Sterling (GBP) struggled to hold onto its initial bout of optimism for long in the wake of the data as worries over Brexit and the economic outlook persisted.
With the UK still at an elevated risk of crashing out of the EU without a deal in October the upside potential of GBP exchange rates remained generally limited.
Although UK industrial and manufacturing production showed a solid rebound on the month the data still fell short of forecast, to the disappointment of investors.
Drop in Consumer Confidence Drags on Australian Dollar (AUD) Demand
The mood towards the Australian Dollar (AUD), meanwhile, diminished in response to a sharp decline in the Westpac consumer confidence index.
As the index plunged -4.1% on the month in July this raised fresh concerns over the strength of the economic outlook, with weaker consumer spending likely to further hamper growth.
Even so, as the odds continued to favour the Federal Reserve cutting interest rates at its July policy meeting this helped to shore up the risk-sensitive Australian Dollar.
As the appeal of the US Dollar (USD) declined this offered a boost to AUD exchange rates, with the prospect of lower US interest rates improving market risk appetite.
Unless May’s Australian home loans and investment lending figures show a solid improvement on the month, however, the Australian Dollar could fall out of favour once again.
Further evidence of weakening confidence within the Australian economy may offer the GBP/AUD exchange rate a boost, with a potential Reserve Bank of Australia (RBA) interest rate cut still on the cards.
GBP Exchange Rates Vulnerable to Negative RICS House Price Balance
The latest RICS house price balance is unlikely to encourage GBP exchange rates, however, as forecasts point towards another month of weakness for the UK housing market.
Fresh evidence that households are holding off on bigger purchases in the face of the ongoing uncertainty surrounding Brexit could prompt further worries over the economic outlook.
As markets continue to assess the likelihood of the UK economy falling into a state of contraction confidence in the Pound may prove limited.
The GBP/AUD exchange rate is also likely to lose traction as long as the next prime minister looks set to prorogue Parliament in order to force through a no-deal Brexit.
Political anxiety may keep the Pound on the back foot for the foreseeable future, even if GBP exchange rates are still able to move away from their recent multi-month lows.