Pound to Australian Dollar (GBP/AUD) Exchange Rate Hits Three-Week-Low as Investors Sell Sterling
UPDATE: The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate saw further losses on Tuesday afternoon, as markets continued to digest the results of Markit’s latest UK services PMI.
Britain’s services sector neared stagnation in January according to the report, and with Brexit uncertainties persisting there are concerns that further weakness is still ahead.
Brexit jitters also worsened today, as UK Prime Minister Theresa May said there was no support for a second referendum and insisted the Brexit date would not be delayed.
This worsened No-deal Brexit fears and left the Pound (GBP) unappealing.
Pound to Australian Dollar (GBP/AUD) Exchange Rate Tumbles as Investors Digest Reserve Bank of Australia (RBA) Interest Rate News
Fears about the damage the Brexit process and surrounding uncertainties are causing to Britain’s economy returned to centre stage today, as the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate tumbled lower.
Last week’s Brexit jitters and risk-sentiment knocked GBP/AUD down over three cents, from the inter-bank level of AU$1.83 to AU$1.80.
GBP/AUD has continued to fall this week so far, as UK data falls short of expectations and the Reserve Bank of Australia’s (RBA) latest policy decision was a little less dovish than investors expected.
However, the Pound to Australian Dollar exchange rate’s losses may have been even deeper if not for Australia’s disappointing retail sales stats this morning.
Pound (GBP) Exchange Rates Remain Limp as UK Services PMI Nears Stagnation
Following disappointing UK manufacturing and construction PMIs in recent sessions, the Pound (GBP) remained unappealing this morning as investors reacted to Britain’s latest services stats from Markit.
January’s services PMI was forecast to have slowed from 51.1 to 51.0. While the previous figure was revised slightly higher to 51.2, the January print slumped to a near-stagnant 50.1.
50 is the point that marks separation between contraction and growth, meaning the services sector barely grew at all in January.
Overall, January’s set of PMIs indicated that Britain’s economy was seeing its slowest growth in two and a half years. Chris Williamson, Markit’s Chief Business Economist, expressed concerns that Britain’s growth may not improve much any time soon amid political uncertainties:
‘The survey results indicate that companies are becoming increasingly risk averse and eager to reduce overheads in the face of weakened customer demand and rising political uncertainty. Such worries were in turn most commonly linked to heightened Brexit anxiety, though wider global political and economic factors were also seen to have been taking their toll on demand.’
Australian Dollar (AUD) Rebounds on Reserve Bank of Australia (RBA) News
Despite recent Australian data disappointing investors, the Reserve Bank of Australia’s February policy decision was actually less dovish than investors had expected.
The RBA held its February policy decision during Tuesday’s Asian session, and investors were surprised when the bank largely maintained its previous signals on Australian monetary policy.
While the bank acknowledged that downside risks had worsened, it maintained that Australian growth would remain above-trend and kept its policy outlook neutral.
The bank showed no signs at all that it could cut interest rates, despite a surge in interest rate cut bets over the last few weeks.
As a result, rate cut bets lessened and the ‘Aussie’ saw much stronger demand today.
It came despite Australia’s disappointing December retail sales stats of -0.4% month-on-month, which had caused Australian Dollar (AUD) weakness right up until the RBA decision.
Pound to Australian Dollar (GBP/AUD) Exchange Rate Weakness Could Persist
As market risk-sentiment improves on hopes of global trade conflict de-escalation, and investors unfold the surge in Reserve Bank of Australia (RBA) interest rate cut bets, the Pound to Australian Dollar (GBP/AUD) exchange rate could be in for further weakness.
Investors still have no reason to buy the Pound (GBP) as Brexit uncertainty persists, and the UK government’s attempts to boost the popularity of its EU withdrawal plan are not perceived as being likely to succeed.
As a result, the Australian Dollar (AUD) could keep pushing GBP/AUD lower if risk-sentiment rises further and upcoming Australian data impresses investors.
Recent Australian data has disappointed despite the RBA’s optimism, so if Thursday’s construction PMI from January beats expectations it could offer the ‘Aussie’ further relief and knock GBP/AUD.
The Bank of England will also hold its February policy decision on Thursday, but unless the bank influences the Brexit outlook in some way it is unlikely to be highly influential for the Pound to Australian Dollar (GBP/AUD) exchange rate.