Pound Australian Dollar (GBP/AUD) Exchange Rate Fluctuates amid Shifting Risk Sentiment

Pound Australian Dollar (GBP/AUD) Exchange Rate Wobbles in Volatile Trade

The Pound Australian Dollar (GBP/AUD) exchange rate fluctuated this morning amid market volatility caused by geopolitical and economic news.

At the time of writing, GBP/AUD is trading at around A$1.7555, virtually unchanged from this morning’s opening level.

Australian Dollar (AUD) Wavers amid Mixed Market Mood

The Australian Dollar (AUD) wobbled in overnight trade as markets try to gauge the potential risks of the US trip to Taiwan.

US House Speaker Nancy Pelosi is currently visiting Taiwan in a display of America’s support for the country, which China views as a breakaway province. Since Russia’s invasion of Ukraine, there has been speculation that China may look to invade Taiwan.

China views the US visit as a provocation and has warned that ‘those who play with fire will perish.’ The escalating tensions triggered significant risk aversion yesterday, but markets seem cautiously hopeful that the current hostile rhetoric will not lead to conflict.

The subsequent mixed market mood caused AUD to waver, but the currency found some support courtesy of its status as a proxy for the Chinese economy. China’s latest services PMI exceeded forecasts, posting the second consecutive month of growth to hit a one-year high.

Pound (GBP) Undermined by Poor PMI

Turning to the Pound (GBP), Sterling has also experienced some volatility today.

After an initial upside, GBP exchange rates turned south following the final UK services PMI.

The revised survey score came in below preliminary estimates, revealing a larger-than-expected slowdown in services sector growth as households and businesses feel the pinch of surging inflation. The services PMI fell from 54.3 in June to a 17-month low of 52.6.

Tim Moore is the Economics Director at S&P Global Market Intelligence, the company that co-conducted the survey. Moore said:

‘UK service providers reported their worst month for business activity expansion since the national lockdown in February 2021.

‘Reduced levels of discretionary consumer spending and efforts by businesses to contain expenses due to escalating inflation have combined to squeeze demand across the service economy.

‘The near-term outlook also looks subdued, as new order growth held close to June’s 16-month low and business optimism was the second weakest since May 2020.’

This has put pressure on the Pound, forcing it to shed earlier gains against the ‘Aussie’ Dollar.

GBP/AUD Exchange Rate Forecast: Limited Movement ahead of BoE Decision?

Through today’s session, external factors – such as risk appetite and political developments – could drive most movement in the GBP/AUD exchange rate.

If market sentiment improves, the riskier Australian Dollar may make gains; if it sours, Sterling could climb.

GBP investors may be hesitant to place aggressive bets ahead of tomorrow’s Bank of England (BoE) interest rate decision. This could keep the Pound ‘Aussie’ pair wavering in a relatively narrow range today.

Tomorrow may bring sharper movement. Markets are pricing in a 50-bp rate rise from the BoE, so a smaller hike could see the Pound tumble. Traders will also be paying close attention to the bank’s forward guidance. Any indication that the pace of tightening could slow may hurt Sterling.

Samuel Birnie

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