GBP AUD Fluctuates as the UK?s Service Sector Demonstrates Growth

Modified: Wednesday, 4 October 2017 16:05 BST - Written by Toni Johnson

STORY LINK GBP AUD Fluctuates as the UK?s Service Sector Demonstrates Growth

The Pound Australian Dollar exchange rate has fluctuated today with the ‘Aussie’ Dollar initially taking the lead on the relative weakness of the US Dollar, before the UK’s robust service sector PMI successfully propelled Sterling to the forefront in the afternoon.

GBP Climbs on Wednesday’s Robust PMI Data

The Pound inched higher on Wednesday with the UK’s Markit service sector business activity index rising to 53.6 in September, up from the previous period’s 11-month low of 53.2 and beating the market forecast of 53.2.

This release followed the disappointing manufacturing and construction PMI releases earlier in the week and helped ease investor anxiety that the Bank of England (BoE) might be turned off of the idea of a rate hike in light of a struggling UK economy.

Senior UK Economist at Berenberg, Kallum Pickering, discussed this positive sentiment, stating:

‘While the short-term risks to demand since the Brexit vote have not materialised in a serious way, the UK economy should be faring much better today on the back of the ongoing global upswing’.

This is all the more notable in light of recent comments from BoE Governor Mark Carney, who has insisted that any changes to monetary policy would be reliant on the UK’s economy continuing to express positive growth.

Markets are, therefore, very sensitive to the performance of the UK’s economy in trying to ascertain if there will indeed be a rate hike from the BoE before the end of 2017.

AUD Bolstered by Weak US Dollar

The Australian Dollar has been buoyed by today’s drop in demand for the US Dollar, which is currently floundering in the wake of speculation regarding who the next Federal Reserve Chairman might be.

Kevin Warsh and Jerome Powell are the two primary candidates, with Powell only recently having eclipsed Warsh in popularity.

This has caused somewhat of an upset for the markets, however, with Powell being notably more dovish than Warsh (who is regarded as outright hawkish).

Investors are now worried that Warsh becoming Fed Chairman would, beyond the usual uncertainty involved in such a transition, result in significant dovish changes to monetary policy.

This news weakened the ‘Greenback’ and positioned its ‘Aussie’ counterpart as the more attractive option.

GBP AUD Forecast: Volatility Ahead on Big Data and Fed Speeches

The forecast for GBP AUD is highly dependent on tonight’s speeches from Yellen and Fed Policymaker James Bullard and tomorrow’s Australian trade balance figures.

Following the recent dovish comments from Fed member Robert Kaplan markets will be poised to assess if Yellen, Bullard and the Fed as a whole remains on track for another rate hike before the end of 2017.

If either member turns dovish then the Australian Dollar will climb, if, however, they reiterate their intentions to push for a rate hike in December then the ‘Greenback’ will climb, pushing GBP AUD higher.

This could change tomorrow, however, if Australia’s trade balance surplus grows as forecast from A$460m to A$870m, with such a jump would liable to put GBP AUD under even more pressure.

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TAGS: Australian Dollar Forecasts