Collapse in UK Services PMI Drives Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Slump
As the UK services PMI collapsed deeper into contraction territory in April this left the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate in a sharp slump.
While forecasts had pointed towards a major decline in the index markets were still caught off guard by the ultimate extent of the drop, which took the PMI from 34.5 to just 12.3.
This remarkable slowdown marks a fresh low point for the measure, highlighting the severity of the pressure currently facing the UK economy.
Chris Williamson, Chief Business Economist at IHS Markit, noted:
‘Business closures and social distancing measures have caused business activity to collapse at a rate vastly exceeding that seen even during the global financial crisis, confirming fears that GDP will slump to a degree previously thought unimaginable in the second quarter due to measures taken to contain the spread of the virus.’
With the service sector still accounting for more than three quarters of UK economic activity the prospect of a massive loss of economic momentum weighed heavily on Pound Sterling (GBP).
Australian Dollar Shrugs off Underwhelming Manufacturing and Services PMIs
Although the latest Australian manufacturing and services PMIs saw a similarly underwhelming performance this failed to drag on the Australian Dollar (AUD).
While confidence in the outlook of the Australian economy remains muted the antipodean currency benefitted from the weakness of its rivals.
With oil prices showing some signs of stabilisation the wider sense of market risk aversion remained muted today, helping AUD exchange rates to hold onto a positive footing.
As the US jobless rate continued to climb the Australian Dollar also found traction on the back of a stumbling US Dollar.
Plunging UK Consumer Confidence Set to Drag GBP/AUD Exchange Rate Lower
Tonight’s GfK consumer confidence index could see the Pound shedding further ground, meanwhile, with forecasts pointing towards another drop in sentiment.
As long as UK consumers continue to reign in their spending and maintain a cautious outlook this should limit the potential for any imminent rebound in economic activity.
A lack of consumer spending could see the economy struggling to return to its feet for some months to come, especially in the face of weaker UK wage growth data.
Until markets see reason to bet that the economy could return to normal sooner rather than later the GBP/AUD exchange rate may remain biased to the downside.
Australian Dollar Strength Remains Tied to Market Risk Sentiment
In the absence of any fresh Australian data releases AUD exchange rates look set to come under pressure as market risk appetite shifts.
Any fresh decline in investor confidence could easily see the Australian Dollar fall out of favour once again ahead of the weekend.
Mounting evidence of the global economy weakening in response to the Covid-19 crisis could well weigh on the Australian Dollar, given the Australian economy’s exposure to global trade trends.
Unless investors see reason to maintain an optimistic outlook in the days ahead the GBP/AUD exchange rate may begin to recover some of its losses.