Ahead of this week’s key UK PMIs, the Pound has struggled to maintain the highs it briefly reached before the weekend.
UK markets were quiet and uninspired during Bank Holiday Monday, allowing the ‘Aussie’ to push the Pound down over a cent, from a three-week-high of 1.7421 to Monday’s low of 1.7270. GBP/AUD was fluctuating in the region of 1.7322 by Tuesday.
Pound (GBP) Enjoys Limited Recovery Rally Before Bank Holiday Slump
Over the course of last week Sterling edged broadly higher as investors sold off their short positions and re-bought the currency from its worst levels.
The Pound was also boosted by news that British economic growth was solid before the UK’s EU Referendum.
However, this news was unable to keep Sterling fundamentally strong as the UK’s outlook has altered since the Brexit vote was confirmed and GBP dipped against a number of rivals on Tuesday.
Australian Dollar (AUD) Weaker on Increased US Dollar Demand
The Pound was able to easily surge against the Australian Dollar on Friday regardless of optimistic domestic Australian news, as higher Federal Reserve rate hike bets led to markets shifting towards risk-off movements.
During Friday’s session the highly anticipated Jackson Hole symposium conference took place, at which Fed Chairwoman Janet Yellen took a vaguely optimistic stance on the health of the US economy.
Her moderately hawkish comments, in conjunction with hints from Vice Chair Fischer, caused 2016 Fed rate hike bets to improve to 60%.
With more analysts now believing a 2016 rate hike is possible, investors poured into the ‘safe-haven’ US Dollar, causing riskier currencies like the ‘Aussie’ to plummet.
However, markets calmed on Monday and Tuesday, and the ‘Aussie’ was able to regain much of its lost strength.
GBP/AUD Exchange Rate Forecast: UK PMIs Ahead
This week’s economic calendar contains a few scattered but potentially influential figures. Perhaps the most notable for the GBP/AUD exchange rate will be the UK’s August consumer confidence survey from GfK, as well as Britain’s first August PMIs.
Consumer confidence plummeted to -12 in July according to GfK’s figure, but markets predict that this will have improved to -8 in August when the report is published on Wednesday morning. Wednesday will also see the publication of Nationwide’s August house price report.
Thursday’s August Manufacturing PMI and Friday’s Construction PMI are also likely to influence Sterling movement this week, particularly if they surprise expectations. Worse-than-anticipated results are likely to send GBP reeling.
As for the ‘Aussie’, Wednesday’s private sector credit and Thursday’s manufacturing index and retail sales reports may influence AUD movement.
However, if risk-sentiment remains low with investors focused on US markets, any optimistic Australian news may only lead to limited ‘Aussie’ strength. Conversely, a surge in risk sentiment may occur if investors lose heart in a 2016 US rate hike again.