Pound Australian Dollar (GBP/AUD) Exchange Rate Slumps as UK Service Sector Growth Slumps to 40-Month Low

GBP/AUD Exchange Rate Undermined by Gloomy PMI Data

The Pound to Australian Dollar (GBP/AUD) exchange rate is in the doldrums this morning as the UK’s latest PMI figures revealed a shock contraction in service sector growth this month.

At the time of writing the GBP/AUD exchange rate is trading at around AU$1.8957, having fallen roughly 0.4% from Friday’s opening levels.

Pound (GBP) Rattled by Slump in UK Service Sector

The Pound (GBP) is on the retreat this morning in response to some downbeat domestic PMI figures.

According to data published by IHS Markit, the UK’s manufacturing index slumped from 49.6 to 49.3, missing expectations of a more modest decline to 49.

However it is the accompanying services index which proved to be the real drag on Sterling, as it revealed a shock contraction in the largest part of the UK economy, with the index tumbling from 50 to 48.6, the lowest reading since July 2016.

In light of this month’s slump and October’s stagnation, analysts warn that the UK economy is on track to contract in the last quarter, something which may force the Bank of England’s (BoE) hand in regards to a potential rate cut in 2020.

Chris Williamson, Chief Business Economist at IHS Markit, comments:

‘The weak survey data puts the economy on course for a 0.2% drop in GDP in the fourth quarter, and also pushes the PMI further into territory that would normally be associated with the Bank of England adding more stimulus to the economy.

‘The big question will be just how long can the Bank of England hold its nerve in keeping policy unchanged.’

Australian Dollar (AUD) Steady amidst Conflicting Trade Headlines

While the Australian Dollar (AUD) is enjoying support against the Pound (GBP) this morning, the risk sensitive currency is struggling to find movement in broader trade on the back of mixed trade headlines.

Recent reports suggest that China has invited US trade officials to another round of face-to-face talks in an effort to find a deal that may stop the US from imposing another round of tariffs on 15th December.

However this follows reports earlier in the week in which US officials expressed doubts that a ‘phase 1’ deal will be signed off by the end of the year.

GBP/AUD Forecast: How Could the Conservative Manifesto Impact Sterling?

Looking ahead, in the absence of any notable UK data, movement in the Pound to Australian Dollar (GBP/AUD) exchange rate is likely to be dominated by UK politics.

The focus point for GBP investors will be the launch of the Conservative’s manifesto.

The release of the Tory manifesto marked the point at which the party started to lose ground to Labour in the 2017 election campaign, and we are likely to see Sterling give ground if we see a similar situation play out.

Australian economic data also looks pretty thin on the ground next week, leaving the ‘Aussie’ vulnerable to market risk appetite.

This could see AUD exchange rates weaken if the news flow regarding US-China trade talks remains broadly negative.

Matthew Andrews

Contact Matthew Andrews