Pound Australian Dollar (GBP/AUD) Exchange Rate Slips as UK Service Sector Struggles
The Pound Australian Dollar (GBP/AUD) exchange rate is slipping this morning, as the UK’s service sector index was revised lower.
At the time of writing, GBP/AUD is trading at around AU$1.7621, a fall of 0.2% from the morning’s opening rates.
Pound (GBP) Weakens as Service Sector Stutters
The Pound (GBP) is weakening this morning against most peers, as inflation continues to bear down on the UK economy.
This morning saw the publication of the services PMI for December, which pointed to a contraction of 49.9. Analysts highlighted the effect inflation was having on the sector, further pointing to a stall in job creation.
Dr John Glen, Chief Economist at the Chartered Institute of Procurement and Supply (CIPS) explained:
‘This shrinkage has also started to impact on job creation levels which stalled for the first time in almost two years. With another drop in orders, especially from domestic customers, businesses were cautious about building more operating capacity which in turn will affect job seekers.’
However, optimistic updates from the UK retail sector may be cushioning the Pound against deeper losses. Businesses such as Next, B&M and Greggs all reported increased profits over December, pointing to a healthy retail environment.
Elsewhere, continuing industrial action across the UK may be exerting further pressure on Sterling. Rail workers are on strike today, with two more days expected this week.
Australian Dollar (AUD) Clipped by Chinese Services Contraction
The Australian Dollar (AUD) is largely rudderless this morning, as AUD’s nature as a Chinese proxy-currency is preventing gains.
Overnight, December’s PMI indexes for China’s service sector reported another contraction of 48. However, the data printed above the forecast of 44.5, preventing losses for the ‘Aussie’.
Optimism remains among investors about China’s economic recovery, which may be further underpinning AUD during this morning’s trade.
This sentiment was explored further by Dr Wang Zhe, Senior Economist at the Caixin Insight Group. He stated:
‘Optimism improved significantly. Service providers expressed strong confidence in an economic recovery following the easing of Covid containment measures.’
Elsewhere, a tepid risk appetite across markets may be further weighing on the risk-sensitive ‘Aussie’. Following yesterday’s Federal Open Market Committee (FOMC) minutes, investors are supporting the ‘Greenback’ as the Fed remained steadfast on tightening.
Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: UK Construction PMI to Dent Sterling?
Looking ahead for the Pound, Friday brings the release of December’s construction indexes. A contraction is forecast, seeing the sector shrink from 50.4 to 49.6, which may wound Sterling should it print as forecast.
For the Australian Dollar, trading conditions are thin through to the week’s close. As such, attention may be focused on news from China regarding Covid cases and imports. With the reported unturning of a ban on Australian coal imports, any further updates on this may lift the ‘Aussie.
Elsewhere, risk appetite across the session may shape either pairing. With both currencies being risk-sensitive, but the Pound may fair worse due to its somewhat safer nature than the ‘Aussie’.