Pound Australian Dollar (GBP/AUD) Rebounds on Surprise UK Services PMI
The Pound Australian Dollar (GBP/AUD) exchange rate is building on gains it made yesterday and has recouped last week’s losses.
Stronger-than-expected UK services PMI data for October has boosted Sterling ahead of the Bank of England’s (BoE) interest rate decision tomorrow.
After falling to AU$1.81 yesterday, GBP/AUD has recovered and is up around 0.4% since the start of today’s European session to trade at AU$1.8381 at the time of writing on Wednesday.
Pound (GBP) Buoyed by Strong Services PMI Growth
The Pound (GBP) has strengthened across the board during Wednesday’s session after the UK’s finalised services PMI for October surprised investors by coming in much higher than expected at 59.1.
Initial estimates had pointed to a reading of 58, which was still well above September’s 55.4 figure.
The data revealed service sector activity expanded at its fastest pace since July, and new export sales rose at their highest level in three years.
However, the survey also highlighted cost inflation accelerated at its fastest pace in 25 years, staff shortages, and supply chain constraints.
Ahead of the BoE interest rate decision tomorrow, analysts commented on the effect that cost pressures may have on future tightening monetary policy decisions from the central bank.
Martin Beck, senior economic advisor to the EY ITEM Club said:
“October’s services PMI rose to a three-month high, providing some reassurance that the economic recovery is far from out of steam. But a record rise in cost pressures pointed to a supply-side still trying to keep pace with demand.
“More evidence of inflationary impulses building may bolster those MPC members on the verge of voting for higher interest rates in November’s meeting. But tomorrow’s decision still looks to be on a knife-edge.”
Australian Dollar (AUD) Caps Losses on Service Sector Growth
The Australian Dollar (AUD) has continued shedding ground since the Reserve Bank of Australia’s (RBA) interest rate decision in the early hours of Tuesday.
However, Australian services PMI data released last night has pared AUD losses today despite coming in slightly under forecast.
Finalised figures jumped to growth for the first time since June with a reading of 51.8 in October, up from 45.5 in September, and after three months of contraction in activity in the sector amid coronavirus restrictions.
As a proxy for the Chinese economy, the Australian Dollar also appeared to receive modest support from the Chinese services PMI for October, which rose on September’s 53.4 reading and beat forecasts of 53 by coming in at 53.8.
Pound Australian Dollar Forecast: BoE Rate Decision in Focus
The Pound Australian Dollar exchange rate could be set for significant movement over coming days, with the BoE interest rate decision announced tomorrow.
Expectations for an interest rate hike from the central bank have shifted recently, and the monetary policy committee (MPC) appears finely balanced as to whether a majority of the nine policymakers will vote to hike interest rates.
While the result of the vote will likely cause significant GBP movement whatever the result, the BoE’s tone in its forward guidance and any signals of tightening monetary policy further will also drive additional movement in the Pound.
Meanwhile, the Australian Dollar could come under pressure after the Federal Reserve’s monetary policy announcement this evening.
With the Fed widely expected to taper its bond-buying programme, the US Dollar could strengthen and in turn weigh on the Australian Dollar.
A smaller Australian trade surplus in September may also limit AUD, with forecasts pointing to an A$12.2B surplus.