Pound Australian Dollar (GBP/AUD) Exchange Rate Firms as UK Service Sector Stages Surprise Recovery

Pound Australian Dollar (GBP/AUD) Exchange Rate Rises as UK Private Sector Improves

The Pound Australian Dollar (GBP/AUD) exchange rate is rising this morning, amid an upbeat slate of UK flash PMIs.

At the time of writing, GBP/AUD is trading at around AU$1.9137, an increase of just over 0.2% from the morning’s opening levels.

Pound (GBP) Strengthens as UK PMIs Beat Forecasts

The Pound (GBP) is gathering pace this morning, following a surprise return to growth in the UK’s services sector.

Per the latest flash PMIs, the vital sector hit a four-month high in November with the index printing at 50.5. Inflation finally turning a corner, alongside a pause in interest rate hikes from the Bank of England (BoE) are bringing some relief to businesses.

Tim Moor, Economics Director at S&P Global Market Intelligence, noted that:

‘Relief at the pause in interest rate hikes and a clear slowdown in headline measures of inflation are helping to support business activity, although the latest survey data merely suggests broadly flat UK GDP in the final quarter of 2023. Prominently cited areas of strength were corporate budgets for technology investment and general spending on essential business services.’

As such, recession jitters amongst GBP investors are likely soothed after this release, despite the UK economy not being entirely out of the woods.

Elsewhere, risk appetite is making an appearance this morning, as concerns over further interest rate hikes from central banks fade.

Australian Dollar (AUD) Shrugs Off Downbeat PMIs amid Risk-On Trade

Risk-on trade is supporting the Australian Dollar (AUD) this morning, despite a poor showing from the latest flash PMIs.

Overnight, both manufacturing and services indexes printed below forecasts. With further deteriorations in the Australian private sector, the outlook seems bleak.

However, analysis of the data indicated that neither sector had slipped into recession, rather suggesting a ‘soft landing’.

Warren Hogan, Chief Economic Advisor at Judo Bank, commented:

‘The November result follows a decline in October and all but confirms that the economy is experiencing a soft landing, consistent with the RBA’s narrow path. It is important to note that we are still seeing no real signs of a hard landing in the survey.’

This is balanced by the cheery market mood this morning, as general trading conditions improve. Factors which usually propel safe-haven currencies – geopolitical tensions, rate hike bets – are easing, bringing support to the ‘Aussie’.

GBP/AUD Exchange Rate Forecast: Minimal Data to Restrict Pairing?

Looking ahead for the Pound, a lack of data releases through to the end of the week may limit Sterling’s movement.

This could bring analysis of Chancellor Hunt’s Autumn Statement, and accompanying forecasts, to the forebear. With the UK’s economic outlook deteriorating further, Sterling could struggle to attract support.

The story is similar for the Australian Dollar, which also looks set to close the week’s session with an absence of data.

Here, risk appetite is likely to play a role in shaping AUD exchange rates. As a more risk-sensitive currency, a downbeat market mood could weaken the ‘Aussie’ against its peers.

John Mulcahey

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