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Pound Australian Dollar Exchange Rate News: GBP/AUD Wavers amid Inflationary Pressures and Mixed Data

June 23, 2022 - Written by John Cameron

Pound (GBP) Pressured by Political Instability and Recession Fears

The Pound (GBP) saw a brief uptick against the Australian Dollar (AUD) in the overnight session before dropping this morning. Ongoing concerns over inflationary pressures and the impending byelection is weighing on the Pound today.

After UK inflation hit 9.1% YoY in May, a 40-year high, concerns continue to grow about an impending global recession. Despite the CPI printing at a modest rate, with many expecting a worse reading, concerning PPI data sets the stage for even more troubling times ahead.

Preliminary PMI data was mixed today, with the services sector providing a positive surprise as manufacturing disappoints and missed estimates. Services printed at 53.4, a welcome boost from the 53 expected, while manufacturing missed estimates and drops to 53.4 compared to the 53.7 expected.

Chief Business Economist at S&P Global, Chris Williamson, commented on the PMI data:

‘The economy is starting to look like it is running on empty. Current business growth is being supported by orders placed in prior months as companies report a near-stalling of demand. Manufacturers, in particular, are struggling with falling orders, especially for exports, and the service sector is already seeing signs of the recent growth spurt from pent-up pandemic demand move into reverse amid the rising cost of living.’

‘Business confidence has now slumped to a level which has in the past typically signalled an imminent recession. The weakness of the broad flow of economic data so far in the second quarter points to a drop in GDP which the forward-looking PMI numbers suggest will gather momentum in the third quarter.’

Elsewhere, political instability makes another unwelcome appearance as Prime Minister Boris Johnson is under pressure from the upcoming byelections which could pave the way for his ousting in the autumn. The Conservatives are set to defend seats in Wakefield, Tiverton, and Honiton after the respective MPs resigned in disgrace.

With Johnson narrowly avoiding a vote of no confidence earlier in the month, a potential damaging double loss to Labour and Lib Dems could point to a renewed effort to remove him. The continuing political instability doesn’t bode well for the Pound, as a shift in leadership could mean a turbulent and uncertain future.

Australian Dollar (AUD) Wavered Despite Strong PMI Data

The Australian Dollar (AUD) weakened overnight despite the positive releases of preliminary PMI data. Both manufacturing and services printed above forecasts but did little to inspire confidence amid the risk-averse market as investors are becoming increasingly concerned about a global recession.

Manufacturing PMI landed at 55.8, beating out expectations and improving on last month’s 55.7. Despite the global economic slowdown, a strengthening Australian manufacturing sector saw the 25th month in which the sector expanded.

Services, despite falling short of last month’s figure, still printed above forecasts at 52.6. Fewer Covid restrictions continued to boost the services sector as services enjoyed the fifth consecutive month of expansion.

GBP/AUD Exchange Rate Forecast: Risk-Averse Market to Weigh Heavily on the Pound?

Looking ahead, with little data to go on, the Pound Australian Dollar (GBP/AUD) exchange rate could fluctuate further on market sentiment alone as concerns continue to mount of a global recession.

Tomorrow sees the release of UK retail sales, and an expected contraction could weigh on the Pound amid the soaring cost-of-living crisis forcing consumers to rein in spending.

Elsewhere, speeches from both RBA Governor Philip Lowe and BoE MPC member Jonathan Haskel could give some further indication to their respective banks on monetary policy moving forward, hawkish tones could boost investors’ confidence.

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