Pound Australian Dollar Extends Downturn on Bleak Economic Forecasts
(Updated 16:00, 23/08/2022) The Pound Australian Dollar (GBP/AUD) exchange rate continued to fall through this afternoon, extending its losses as mixed PMI data was compounded by a disappointing release from the Confederation of British Industry (CBI).
According to the CBI, factory output fell in the three months to August for the first time since February 2021. The reading printed at -7, from 8 in July and 18 in June.
Also weighing upon Sterling are downbeat economic forecasts from various experts. According to City traders, the Bank of England (BoE) may be forced to raise interest rates to 4% in 2023 in order to subdue inflationary pressures.
Such an aggressive move from the BoE could wreak havoc for the UK’s already-fragile economy, contributing towards a lengthier recession than anticipated.
Original article continues below:
GBP/AUD Falls to 8-Day Low as AU Data Disappoints
The Pound Australian Dollar (GBP/AUD) exchange rate dropped overnight despite Australia’s services PMI falling unexpectedly into contraction territory. Driving downside in the Pound (GBP) are soaring energy costs and a weakening economy.
At the time of writing, GBP/AUD is trading at A$1.7113, virtually unchanged from today’s opening levels.
Pound (GBP) Hits Lowest Level Since March 2020
Analysts observed this morning that the Pound dropped to a seventeen-month low against the US Dollar (USD), reflecting a general weakness in the currency as energy forecasts and a struggling economy weigh upon Sterling sentiment.
Energy prices are surging amid shortages of natural gas, given souring relations between Russia – the world’s largest gas exporter – and the West. The energy crisis is considered to be worse in parts of Europe, as European countries are more dependent upon Russia for supplies – but price hikes are still weighing heavily in the UK.
While the BBC reports ‘the government insists there is no risk to UK energy supplies and consumers should not panic’, the UK’s National Grid has extended its regular emergency planning drill from 2 days to 4.
Government agencies, regulators, lobby groups and major energy firms will simulate scenarios in which a loss of gas causes an emergency situation.
Also weighing upon the Pound today is a weaker than expected manufacturing PMI for the month of August. Manufacturing activity in Britain has fallen into contraction for the first time since May 2020 on reduced customer demand, supply chain delays and a shortage of labour.
Dr John Glen, CIPS chief economist, remarked of the data:
‘Supply chain managers reported client reluctance to spend as the cost of living and the cost of doing business remained at elevated levels and both domestic and export orders were affected.’
Australian Dollar (AUD) Wavers amid Uncertain Economic Outlook
The Australian Dollar (AUD) is trending up against several peers today, in spite of a drop in service-sector activity and a slowing of growth in the manufacturing sector.
The country’s services PMI for August contracted rather than remaining in expansion territory as forecast, causing Australia’s economy to shrink for the first time since January. Business confidence also tumbled to its weakest level since April 2020.
According to Laura Denman, economist at S&P Global Market Intelligence:
‘A renewed contraction in Australia’s private sector economy indicates that recent interest rate hikes made by the RBA, as well as sustained inflationary pressures, have begun to take a toll on overall demand levels.
[Nevertheless,] survey data continues to highlight the supply issues that remain prevalent globally, which will continue to keep price levels elevated.
As such, the RBA will likely continue along its rate-hiking path, which bodes ill for the wider economy given the latest survey data highlight clear signs of underlying weakness.’
In the near term, it may be the case that the prospect of additional interest rate hikes from the Reserve Bank of Australia (RBA) are buoying investor confidence.
Also supporting the ‘Aussie’ may be rising commodity prices, as Australia’s two main exports – coal and iron ore – rise in value.
GBP/AUD Exchange Rate Forecast: External Factors to Drive Movement?
Looking ahead, a lack of further domestic data through today’s session leaves the Pound Australian Dollar exchange rate to trade on external factors.
Downbeat risk sentiment could lend support to GBP/AUD, while further bearish rhetoric from UK analysts and statisticians may subdue gains for the exchange rate.
An ongoing lack of data tomorrow leaves both currencies exposed to losses against their peers.