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Pound Australian Dollar (GBP/AUD) Exchange Rate Dips as Risk Sentiment Improves

August 23, 2021 - Written by John Cameron

GBP/AUD Exchange Rate Sinks, ‘Aussie’ Buoyed by Returning Risk-On Mood

The Pound Australian Dollar exchange rate fell by -0.3% this morning as a return of improved risk sentiment drives-up demand for the risk-averse ‘Aussie’. The pairing is currently fluctuating around AU$1.90.

Last week saw a ‘risk off’ market mood hold back the AUD/GBP exchange rate, but this week has seen a steady return of confidence in the global economy.

Heever’s, Australia’s latest Commonwealth Bank Australian manufacturing and services PMI data has dampened confidence in the nation’s domestic economy.

Jingyi Pan, economics associate director at IHS Markit, commented on the data:

‘Australia’s private sector remained stuck in decline in August…as activity remained heavily impacted by current mobility restrictions brought about by the spread of the COVID-19 Delta variant.

‘Not only were demand and business activity hit, employment conditions also deteriorated, with private sector staffing levels falling for the first time since October 2020. The labour market situation had been made worse on both ends of supply and demand amid the latest COVID-19 disruptions.’

Upbeat global market mood, however, has buoyed the AUD/GBP exchange rate today. But how long could the ‘Aussie’s gains last in a turbulent market?

GBP/AUD Exchange Rate Falls as UK Growth Falls to Six-Month Low in August

The Pound (GBP) fell today after UK growth hit a six-month low in August due to staff and materials shortages.

Rhys Herbert, senior economist at Lloyds Bank, commented:

‘Many sectors are reporting record high numbers of job vacancies, reflecting healthy demand, yet there are signs that some businesses are finding recruitment difficult. With supply chain disruptions also persisting inflationary pressures remain a concern for now despite the slowdown in CPI inflation in July.

‘The economy is in good shape heading into the autumn, though with some unknowns. The expiration of the furlough scheme, the prospect of another spike in Covid-19 cases during the winter and further disruption from fresh lockdowns overseas each present potential hurdles in the months to come.’

The latest UK Markit services PMI for August fell from 59.6 to 55.5, sparking concerns about the state of the nation’s largest sector.

However, UK manufacturing remained relatively strong this month, with the preliminary beating forecasts of 59.5 at 60.1.

But with the nation’s Covid-19 cases rising, and hospitalisations increasing, Pound investors are remaining cautious about economic recovery.

GBP/AUD Exchange Rate Forecast: Could Souring Risk Sentiment Undermine the ‘Aussie’s Gains?

Australian Dollar (AUD) traders will be looking ahead to Wednesday’s speech from the Reserve Bank of Australian’s (RBA) Luic Ellis, who is the assistant governor at the central bank.

Could dovish commentary about the state of the Australian economy limit the ‘Aussie’s gains this week?

Risk sentiment will continue to be the driving-force behind the Australian Dollar, however, so any signs of a deteriorating Chinese economy – or rising cases of Covid-19 in key economies like the Eurozone or the United States – would be AUD-negative.

Pound (GBP) investors will continue to monitor the UK’s Covid-19 developments. Any indications of rising case numbers would further drag down the GBP/AUD exchange rate.

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