Pound Australian Dollar Exchange Rate News: GBP/AUD Traded Erratically as UK Service Sector Contracts Again

January 5, 2023 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Traded Erratically as UK Service Sector Contracts Again

Pound (GBP) Undermined by Downbeat Economic Climate

The Pound (GBP) struggled for demand this morning in the face of mounting industrial action and its impact on the economy, compounded by a revised lower services PMI. Sterling has spent most of the new year so far failing to muster much strength as a myriad of issues weigh on both the economy and the Pound.

A revised lower services PMI saw the sector remains in contraction territory for the fourth consecutive month. Preliminary data showed services activity finally pulling away from declining activity, but the wealth of downward pressures prevented it from doing so. Tim Moore, Economics Director at S&P Global, the compiler of the survey, commented:

‘UK service providers ended the year with another downturn in new orders as strong inflationary pressures and worries about the economic outlook sapped demand.
‘Overall levels of business activity fell only fractionally, despite an exceptionally challenging business environment and spending cutbacks due to cost-of-living difficulties.’

Meanwhile, the ongoing industrial action continues to impact the shaky economy, as one in six UK firms have been affected by the walkouts. The Office for National Statistics (ONS) conducted a survey that revealed 5% of UK companies are planning to make redundancies over the next quarter. However, a third of businesses are reporting staff shortages, including half of all health and social work industries.

Australian Dollar (AUD) Quiet amid Further Negative China News

Meanwhile, the Australian Dollar (AUD) remained listless on Thursday as a lack of economic data left the risk-sensitive ‘Aussie’ vulnerable to external factors.

China’s service sector followed the UK and declined. Despite printing above forecasts of a 44.5 PMI, the service sector came in at 48, still shy of an expanding sector. The Caixin survey pointed towards a fourth consecutive month of declining activity as debilitating Covid surges hampered the shaky economy. Dr Wang Zhe, Senior Economist at Caixin, commented:

‘Optimism improved significantly. Service providers expressed strong confidence in an economic recovery following the easing of Covid containment measures.’

GBP/AUD Exchange Rate Forecast: UK Construction Sector to Drag Sterling Further?

Looking ahead, the Pound Australian Dollar exchange rate could see further movement with the release of UK construction PMI data. An expected contraction in the sector could weigh on Sterling as it would complete a hat-trick of declining activity across all PMIs.

Meanwhile, the Australian Dollar could be left open to global market sentiment in lieu of economic data. AUD investors would have to shift their attention to further developments in China and Ukraine. If the potential lifting of the coal ban was to happen, the ‘Aussie’ could see a boost.

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