GBP/AUD Exchange Rate Muted on UK Service PMI Figures
UPDATE: The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate was stuck in a narrow range on Tuesday morning as markets digest the UK’s latest services PMI.
While headline growth was reported to have accelerated in February, helping the service sector edge away from the point of contraction, the index revealed some worrying insights into how Brexit uncertainty is impacting businesses
UK Services PMI up from Jan’s 2-and-a-half-yr low to 51.3 (50.1 prev), but growth signalled only modest, suggesting GDP growth of around 0.1% in Q1. Demand and employment fall as clients hold back on orders and firms stall on hiring decisions. More: https://t.co/7jsgKdifaP pic.twitter.com/uCJNeKpxk6
— IHS Markit PMI™ (@IHSMarkitPMI) March 5, 2019
Of particular concern was that firms were slashing jobs in the face of an uncertain future outside of the EU, with UK staff levels falling to a six-year low last month.
GBP/AUD Exchange Rate Supported by Brexit Delay Speculation
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is on the offensive at the start of this week’s session, being pushed higher by rising optimism among traders that Brexit will be delayed.
At the time of writing the GBP/AUD exchange rate is up by nearly 0.3%, leaving the pairing close to its best levels since the Brexit referendum.
Pound (GBP) Climbs on Brexit Hopes
The Pound (GBP) is trending higher against the Australian Dollar (AUD) and the majority of its other peers this morning as Sterling continues to be underpinned by Brexit optimism.
This comes as markets grow increasingly hopeful that Brexit will be delayed after Theresa May granted a vote on extending Article 50 if her withdrawal deal is rejected again next week.
However, slightly denting demand for the Pound this morning was the release of a weaker-than-expected construction PMI.
The figures revealed that growth in the UK’s construction sector unexpectedly contracted in February, with IHS Markit, who compiled the data reporting that Brexit uncertainty had stifled client demand and caused delays to commercial projects this year.
Tim Moore, Economics Associate Director at IHS Markit, suggests:
‘The UK construction sector moved into decline during February as Brexit anxiety intensified and clients opted to delay decision-making on building projects. Risk aversion in the commercial sub-category has exerted a downward influence on workloads throughout the year so far.’
Australian Dollar (AUD) Buoyed by US-China Trade Optimism
Meanwhile, while the Australian Dollar (AUD) may be giving up ground against the Pound (GBP) this morning amidst rising optimism regarding a potential US-China trade deal.
This follows reports from the Wall Street Journal that China is offering to lower tariffs on some US goods and provide greater protection for intellectual property to help get a potential trade deal over the finishing line.
The U.S. and China are close to nailing down a trade deal, with Beijing offering to lower tariffs on American farm, auto and other products https://t.co/dsSWtvyGzT
— The Wall Street Journal (@WSJ) March 3, 2019
The WSJ suggests that a formal agreement should be in place for an upcoming summit between President Trump and President Xi scheduled for later this month.
This has helped to bolster the appeal of the ‘Aussie’ and other risk-sensitive currencies at the start of this week’s session.
GBP/AUD Exchange Rate Forecast: Contraction in UK Service Sector to Drag on Sterling?
Looking ahead to the remainder of this week’s session, the Pound Australian Dollar (GBP/AUD) exchange rate is likely to come under pressure on Tuesday with the release of the UK’s latest Services PMI.
Economists forecast that growth in the UK’s dominant service sector will have contracted in February, bolstering fears that Britain’s economy will have stagnated in the first quarter of 2019.
Meanwhile the focus for AUD investors this week is likely to be on the release of Australia’s fourth quarter GDP figures on Wednesday.
This may see the Australian Dollar strengthen in the mid-week if domestic growth saw a slight pick-up at the end of 2018 as forecast.