Pound Australian Dollar (GBP/AUD) Exchange Rate Slips Thanks to Rising UK Services Job Cuts

Underwhelming UK Services PMI Prompts Pound Australian Dollar (GBP/AUD) Exchange Rate Dip

August’s finalised UK services PMI failed to offer encouragement to the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate even though the index saw an improvement on the month.

While the service sector delivered a strong month of expansion, pushing the index up to 58.8, this fell short of the initial estimate and left Pound Sterling (GBP) vulnerable to selling pressure.

The underlying details of the report also discouraged investors, revealing that businesses had continued to cut jobs last month as the government furlough scheme wound down.

All in all, this did not paint the most encouraging picture of the economic outlook, especially as the issue of Brexit continues to loom on the horizon.

As Chris Williamson, Chief Business Economist at IHS Markit, noted:

‘Worryingly, many companies are already preparing for tougher times ahead, notably via further fierce job cutting, the rate of which re-accelerated in the service sector in August to a pace exceeding that seen at the height of the global financial crisis.

‘Policymakers face a huge challenge in sustaining this recovery and avoiding a “bounce and fade” scenario, especially if virus numbers escalate further, in which case we may be looking at a “bounce and slump”.’

UK Construction PMI Unlikely to Encourage Pound Sterling Rally

The release of the corresponding UK construction PMI may not offer any particular encouragement to GBP exchange rates on Friday.

As the construction sector only accounts for a small fraction of the UK gross domestic product even a strong showing here could struggle to shore up demand for the Pound.

Even so, evidence that the construction sector saw resilient growth in the last month may still help to put a floor under the GBP/AUD exchange rate in the near term.

Although the Bank of England (BoE) looks set to come under increasing pressure to offer support to the economy in the coming months the upside potential of the Pound could prove limited this week.

GBP/AUD Exchange Rate Fails to Benefit from Narrowing Australian Trade Surplus

Even though July’s Australian trade surplus narrowed this was not enough to shore up the GBP/AUD exchange rate today.

While signs continue to point towards the Australian economy coming under greater pressure as a result of ongoing Covid-19 disruption the Australian Dollar (AUD) held onto a positive footing against the Pound.

However, fading market confidence looks set to drive the antipodean currency lower across the board as worries over the sustainability of the global recovery mount.

With the US Dollar (USD) on a bullish run once again the appeal of the risk-sensitive Australian Dollar has faded, in spite of the chance of further central bank stimulus action to come.

Solid Retail Sales Figures to Offer Australian Dollar Boost

This sense of market risk aversion could help to shore up the GBP/AUD exchange rate, even if the latest UK data releases continue to disappoint.

Even so, demand for the Australian Dollar may pick up ahead of the weekend if July’s Australian retail sales figures prove encouraging.

Signs of a continued recovery in retail spending could ease anxiety over the health of the Australian economy, in spite of other recent evidence of weakness.

If the latest US non-farm payrolls report shows a smaller increase in employment than forecast this could also offer the Australian Dollar a boost, to the detriment of the GBP/AUD exchange rate.

Louisa Heath

Contact Louisa Heath