Pound Australian Dollar Exchange Rate News: GBP/AUD Strengthened Despite Downbeat UK PMI Data

November 23, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Strengthened Despite Downbeat UK PMI Data

Pound (GBP) Climbed Despite PMI Data Highlighting a Shrinking Economy

The Pound (GBP) enjoyed moderate success against most of its rivals on Wednesday in the wake of slightly better-than-expected PMI data.

Even though the manufacturing sector beat forecasts, the industry remains in contraction as manufacturing PMI declines for the fourth consecutive month. Services also printed better than expected, but still pointed to a second straight month of contraction. The continued fall in business activity remains a big concern for GBP investors.

Further weighing on Sterling, is that the continued slowdown in both services and manufacturing highlight a technical recession after two straight quarters of shrinking GDP. Chris Williamson, Chief Business Economist at S&P, commented on the PMI survey:

‘If pandemic lockdown months are excluded, the PMI for the fourth quarter so far is signalling the steepest economic contraction since the height of the global financial crisis in the first quarter of 2009, consistent with the economy contracting at a quarterly rate of 0.4%.

‘Forward-looking indicators, notably an increasingly steep drop in demand for goods and services, suggest the downturn will deepen as we head into the new year.’

Meanwhile, lending some modest support to the Pound is the UK Supreme Court’s decision on ruling out another Scottish referendum vote. A second vote would have likely caused further instability and uncertainty in a political climate where Sterling is not long shrugged off. GBP investors cheered the decision from the Supreme Court and the Pound saw some much-needed support. Nicola Sturgeon, Scotland’s First Minister, decried the decision, who reiterates Scotland’s future is for Scotland to decided. She commented after the decision:

‘Scottish democracy will not be denied. Today’s ruling blocks one route to Scotland’s voice being heard on independence – but in a democracy our voice cannot and will not be silenced.’

Australian Dollar (AUD) Undermined by Poor PMI Data

Meanwhile, the Australian Dollar (AUD) was also weighed down by poor economic performance as PMI data for both manufacturing and services printed lower than expected.

Manufacturing activity was expected to slow down for the month of November, but it still missed forecasts as it printed at 51.5 versus an expected 52.2. Despite marking the 30th successive month of strengthening activity, the latest reading was the softest since the height of the pandemic in June 2020. Laura Denman, Economist at S&P Global, said of the data:

‘Eased sector growth suggested that inflationary pressures and interest rate hikes recently made by the RBA are beginning to weigh on demand.

‘Moreover, despite both output and new orders remaining in expansion territory in August, the softening of these and other indicators point towards further weakening of the sector in the coming months.’

Further weighing on the risk-sensitive ‘Aussie’ is continuing concerning news out of China. Rising Covid cases are threatening to derail the Chinese economy as protests have begun at the Foxconn iPhone factory in Zhengzhou. Any further disruptions to the world’s second largest economy could have a profound effect on the global market sentiment, and in turn, the Australian Dollar.

GBP/AUD Exchange Rate Forecast: BoE Speech to Bolster Sterling?

Looking ahead, the Pound Australian Dollar exchange rate could see further daylight between the Pound and the ‘Aussie’ if Bank of England (BoE) Chief Economist Huw Pill strikes a hawkish tone at his speech Wednesday evening.

Meanwhile, the Australian Dollar will be trading on market sentiment for the rest of the week amid a lack of major data. Further negative headlines out of China could weigh on the ‘Aussie’.

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