Pound Australian Dollar (GBP/AUD) Exchange Rate Slips amid Signs of Improvement in Chinese Economy

February 1, 2023 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Slips amid Signs of Improvement in Chinese Economy

Pound Australian Dollar (GBP/AUD) Exchange Rate Falls Despite Cautious Market Mood

The Pound Australian Dollar (GBP/AUD) exchange rate fell on Wednesday. Signs of poor performance in the UK’s manufacturing sector pushed the pairing lower.

Additionally, signs of improvement in China’s economy also prompted losses in GBP/AUD.

At time of writing the GBP/AUD exchange rate was at around AU$1.7418, which was down roughly 0.2% from that morning's opening figures.

Pound (GBP) Ticks Higher amid Risk-Off Mood, Slips Against AUD as Manufacturing Sector Struggles

The Pound (GBP) edged higher today. Sterling saw gains against its riskier peers due to a pullback in risk appetite. The currency is slipped against a stronger Australian Dollar (AUD), however.

GBP came under pressure from further poor data releases for the UK’s private sectors. The final reading of January’s PMI indicated a sixth consecutive month of contraction in the UK’s manufacturing sector. Soaring price inflation and weak demand weighed on the sector.

Rob Dobson, director at S&P Global Market Intelligence, said:

‘UK manufacturers faced a tough operating environment at the start of 2023, leading to reducing intakes of new business, declining production volumes and lower staffing levels.

Further signs of a cooldown in the UK’s housing sector also be weighed on the Pound on Wednesday. House prices fell by 0.6% in January versus a forecast drop of 0.3%.

Bets on a 50bps interest rate hike from the Bank of England (BoE) at their meeting this week lent support to GBP, however.

Australian Dollar (AUD) Bolstered by Signs of Recovery in Chinese Economy

The Australian Dollar (AUD) firmed against its rivals on Wednesday. A cautious market mood kept AUD’s gains limited, however.

The ‘Aussie’ found support from an upward revision in the final reading of January’s manufacturing PMI. The figures, released overnight, pointed to easing price pressures and rising business optimism for the coming year.

Additionally, positive signs from China’s private sectors pushed AUD higher. January’s PMI for the country’s manufacturing sector pointed to a slower pace of contraction as China lifted its Covid-19 restrictions. Analysts hailed the data as evidence that the worst of China’s Covid-driven slump had passed.

Finally, AUD also saw a boost from Reserve Bank of Australia (RBA) rate hike bets. The RBA is expected to hike rates by 25bps at its next meeting.

Speaking on the RBA’s rate hike path, Deutsche Bank chief economist Phil O'Donoghoe said:

‘While the RBA will likely move more slowly in 2023 than it did in 2022, we now expect four more 25 basis point hikes this year: 25 basis points in each of February and March, and 25 basis points each at the May and August meetings.

GBP/AUD Exchange Rate Forecast: Will BoE Signal Slowdown after Interest Rate Decision?

Looking ahead to the rest of the week for Sterling, the BoE’s interest rate decision on Thursday is set to be a key drive for the currency. The central bank’s predicted 50bps interest rate hike could provide a modest boost for the Pound.

Any forward guidance from the BoE following the meeting could prompt more significant shifts in the Pound, however. Markets are anticipating signs of a policy tightening slowdown from the central bank amid easing inflationary pressures. The Pound could slump amid any such signals.

On Friday, the final reading of January’s services sector PMI could add to any negative sentiment surrounding GBP. The data is set to confirm a contraction in the UK’s dominant private sector.

For the Australian Dollar, the final reading of January’s services sector PMI could dent confidence in the ‘Aussie’ if Thursday’s data prints as forecast. The reading is expected to point to a contraction in the sector. The forecast slower rate of contraction could limit the negative impact of the figures, however.

On the other hand, the latest PMI for China’s services sector on Friday could provide a boost to the Australian Dollar. The index is forecast to indicate a return to growth for the sector in January.

Like this piece? Please share with your friends and colleagues:

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Australian Dollar Forecasts