Pound Australian Dollar (GBP/AUD) Exchange Rate Rises following UK Services Data
(Updated 16:30, 04/05/23) The Pound Australian Dollar (GBP/AUD) exchange rate ticked higher today, with the pairing managing to return to the same level it was before the Reserve Bank of Australia’s (RBA) surprise rate rise on Tuesday.
The Pound’s (GBP) upside today came as the UK’s final services PMI printed higher than flash estimates. The survey showed that activity in the UK’s vital services sector accelerated to a one-year high. Meanwhile, ongoing inflationary pressures saw markets bet on more interest rate rises from the Bank of England (BoE).
A downbeat market mood also pressured the risk-sensitive Australian Dollar (AUD). Turmoil has returned to the US banking sector, with more regional lenders struggling amid tighter credit conditions.
Looking ahead, the RBA’s statement on monetary policy is due out overnight. Could hawkish signals from the Australian central bank see GBP/AUD fall?
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Pound Australian Dollar (GBP/AUD) Exchange Rate Rebounds as UK Data Beats Forecasts
The Pound Australian Dollar (GBP/AUD) exchange rate is recovering ground this morning, having experienced some volatility overnight, amid strong UK economic data and a risk-off market mood.
At the time of writing, GBP/AUD is trading around AU$1.8852. This is up around 0.3% from the start of today’s European session, but down almost 0.4% from an overnight high of AU$1.8925.
Pound (GBP) Rallies amid Upbeat Services PMI
The final survey score was revised up from 54.9 to 55.9 in April, a sizable improvement from March’s 52.9, and the strongest growth in the UK services sector in a year. As services account for around 80% of British economic output, today’s upbeat results are cheering investors.
Buoyant demand for services boosts new orders and activity growth in the #UK. (#PMI at 55.9; Mar: 52.9). Demand resilience and greater wage costs add to #inflationary pressures in the service economy. Read more: https://t.co/TJyHbtTxUE pic.twitter.com/uhbDk6NeIc
— S&P Global PMI™ (@SPGlobalPMI) May 4, 2023
Furthermore, the PMI showed increased cost pressures in the sector – partly driven by higher wages. This in turn could push the Bank of England (BoE) to continue raising interest rates, another factor that may support the Pound.
Tim Moore, Economics Director at S&P Global Market Intelligence, which compiles the PMI, commented:
‘A strong rate of service sector growth meant that the UK economy started the second quarter of 2023 in positive fashion. Overall private sector output expanded at the fastest pace for one year, despite another fall in manufacturing production during April.
‘While the growth outlook has improved considerably for the service economy this spring, a swift rebound in customer demand appears to have reignited inflationary pressures. Both input costs and average prices charged increased at faster rates in April, which service providers overwhelmingly attributed to greater staff wages.’
Australian Dollar (AUD) Relinquishes Gains as Market Mood Sours
Meanwhile, the Australian Dollar (AUD) is softening against the Pound as a downbeat market mood pressures the risk-sensitive ‘Aussie’.
Last night, AUD saw some volatility. The currency fell sharply as the overnight session began, but it bounced back thanks to strong Australian trade data and a risk-on market mood.
Since the European session started, however, sentiment has soured.
Fresh banking jitters in the US have spread into European markets. California lender PacWest saw its shares slump by more than 50% in after-hours trading, while many other US banks have faced steep selloffs. This follows JP Morgan’s takeover of embattled bank First Republic earlier this week.
PacWest Bankcorp shares dropped by 54% as news emerged that the bank is exploring options to exit the crisis, including selling or raising capital. The bank has lost almost 90% of its value since March 8th.#PacWest #Crypto #cryptocurrency #cryptomarket #CryptoTrading #CryptoGPT pic.twitter.com/zdDMiqhrzc
— Darkducktrader (@darkducktrader) May 4, 2023
Against this backdrop, European equity markets are in the red. Anxious traders are therefore avoiding riskier assets, such as the Australian Dollar, in search of safer investments.
GBP/AUD Exchange Rate Forecast: RBA Statement to Help the ‘Aussie’ Regain Ground?
As today’s session unfolds, GBP/AUD could continue to gain ground. With the UK’s services sector PMI showing a resilient economy and prompting increased expectations for more BoE hikes, the Pound could enjoy continued support through today’s session.
Meanwhile, if the market mood remains downbeat then the riskier ‘Aussie’ could remain under pressure.
Looking further ahead, AUD investors will be focusing on the Reserve Bank of Australia’s (RBA) statement on monetary policy, which is due out overnight.
The RBA surprised markets with a 25bps rate hike earlier this week, sending AUD exchange rates sharply higher. The upcoming statement could reignite interest in the ‘Aussie’ if it reiterates the central bank’s renewed hawkishness.