Foreign Exchange Insight : GBP USD Rate Plummets as Congress Votes to Avert US Default, While AUD Suffers Following Weak Australian Building Approvals Data

2 Aug 2011 at 7 AM - Written by John Cameron

STORY LINK Foreign Exchange Insight : GBP USD Rate Plummets as Congress Votes to Avert US Default, While AUD Suffers Following Weak Australian Building Approvals Data

The Pound Euro exchange rate (GBP EUR) is 1.1456. The Pound Dollar exchange rate (GBP USD) is 1.6305. The Pound Australian Dollar exchange rate (GBP AUD) is 1.4951.

As expected, the US House of Representatives yesterday voted by 269 votes to 161 in favour of a Bill to raise the US debt ceiling, whilst introducing measures to cut government spending over the next decade.

The Bill will be rubber-stamped by the US Senate later today and will be passed into law just in time for America to avoid a catastrophic default on its debt commitments.

Equities markets’ reaction to the news was muted, suggesting that a ‘yes’ vote to the package had been largely factored-in, but the US Dollar enjoyed a ‘relief rally’ following the passing of the Bill, causing the GBP USD rate to trade as low as 1.6237 during yesterday afternoon’s European session. Dollar strength was short-lived though, with the GBP USD rate re-tracing as the North American session progressed, to close the day back above 1.6300 at 1.6307.

Meanwhile, yesterday’s Markit/Cips July Purchasing Managers’ Index survey of the UK’s manufacturing base printed at below 50 for the first time in two years, indicating that Britain’s key manufacturing sector is in contraction. Analysts had expected a reading of 51.0, so there was surprise when July’s number came in at 49.1, causing broad Sterling weakness in the currency markets.

Elsewhere, Australian Building Approvals data for June, released overnight, showed a shock monthly contraction of 3.5% against analysts’ expectations of an increase of 3.0%. The data also showed that the number of Australian buildings approvals issued in the 12 months to June fell by 15.5%, suggesting that economic activity may be slowing in Australia.

Given these worrying figures, it was no surprise when the Reserve Bank of Australia decided to maintain it’s key lending rate at 4.75% in the early hours of this morning. The weak Australian numbers have caused the GBP AUD rate to strongly reject yesterday’s low of 1.4794 to trade back above 1.4900.


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