GBP/AUD Exchange Rate Drops -0.4% after Services Sector Data Misses Forecasts

May 3, 2018 - Written by James Fuller

STORY LINK GBP/AUD Exchange Rate Drops -0.4% after Services Sector Data Misses Forecasts

During 2nd May’s trading session, the Pound to Australian Dollar exchange rate opened in the region of 1.8189 but closed down slightly lower around 1.8128.

This decline was caused by a cautious reception to news of above-forecast UK construction sector growth in April.

Despite the construction PMI rising by more than expected, the Pound still fell in value because of concerns over future sector vulnerability.

Summing up the risks of the sector contracting again, IHS Markit Associate Director Tim Moore said;

‘A consistent theme so far this year has been fragile demand conditions and subdued volumes of incoming new work.

‘Survey respondents noted that heightened economic uncertainty continued to hold back construction growth in April, with risk aversion among clients leading to delays with spending decisions on new projects’.

Troubling Services Sector PMI Triggers GBP/AUD Exchange Rate Decline

Today’s Pound to Australian Dollar (GBP/AUD) exchange rate losses have been caused by a negative response to the latest UK services PMI data.

The stats for April have shown growth from 51.7 points to 52.8, although this printing has missed the forecast 53.5 point result.

This below-expectation figure has made the PMI growth reading a more negative than positive influence, with Markit Chief Business Economist Chris Williamson stating;

‘The services survey adds to signs that the rate of economic growth remained disappointingly subdued at the start of the second quarter.

‘The three PMI surveys collectively showed only a muted rebound in business activity after being disrupted by heavy snowfall in March, failing to regain February’s pace of growth to suggest that the underlying performance of the economy has continued to deteriorate.

‘Jobs growth across services, manufacturing and construction has also slowed to its weakest since the referendum and inflationary pressures have eased’.

Stating that a Bank of England (BoE) interest rate hike already seemed unlikely before this negative data release, Pantheon Macroeconomics Chief UK Economist Samuel Tombs said;

‘[This adds] to fears that the underlying pace of growth in activity has slowed even further this year.

‘The services PMI was never going to be pivotal for the BoE MPC’s interest rate decision this month, given that both GDP and inflation already had surprised greatly to the downside.

‘Following today’s data, nobody can have strong conviction that the economy’s first quarter slowdown will be just a blip’.

Surprise AU Trade Balance Surplus Pushes AUD/GBP Exchange Rate Higher

While the Pound (GBP) has struggled today, the Australian Dollar (AUD) has conversely rallied thanks to forecast-beating trade balance data.

The AUD/GBP exchange rate has risen by 0.3%, following the news that March’s trade balance has shown a surplus expansion instead of shrinking.

This result means that Australian exports exceed imports, indicating a ‘healthy’ trade balance.

Further support has come from AU building permit approval figures for March, which have shown growth above the predicted level during the month.

Increasing number of permits imply that construction activity in Australia will rise, in turn contributing to GDP growth in the country.

GBP/AUD Forecast: Will Pound to Australian Dollar Exchange Rate Rally on BoE Interest Rate Hike

The Pound to Australian Dollar (GBP/AUD) exchange rate could turn volatile in the coming week, when the Bank of England (BoE) makes a crucial interest rate decision on 10th May.

At the beginning of April it had seemed that a BoE interest rate hike in May was highly likely, but a month later the odds of a rate hike have diminished significantly.

UK PMI activity slowed in March due to snowstorms, inflation slowed at a faster pace than expected and retail sales took a battering.

More recently, consumer confidence declined in April while Q1 GDP growth stats showed a significant decline on the quarter and the year.

With the UK economy looking so vulnerable at the present time, it is entirely possible that BoE policymakers will hold fire and leave interest rates at 0.5%.

The Pound to Australian Dollar exchange rate might drop sharply if this happens; conversely, a pessimism-defying hike could lead to a GBP/AUD rally.

Australian Dollar movement next week may be caused by a business confidence reading on 7th May, followed by consumer confidence stats on 9th May.

Levels of optimism among businesses are tipped to rise, as are levels of consumer sentiment.

Forecast-matching results could boost the Australian Dollar to Pound (AUD/GBP) exchange rate before the high-impact BoE meeting takes place.

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TAGS: Pound Australian Dollar Forecasts