Pound Australian Dollar Exchange Rate News: GBP/AUD fluctuated despite strong UK retail sales

March 24, 2023 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD fluctuated despite strong UK retail sales

Pound (GBP) Undermined by Lingering Recession Fears

Meanwhile, the Pound (GBP) struggled to find a clear direction on Friday against some of its peers. Despite retail sales printing far above market forecasts with a 1.2% increase, the Pound still succumbed to looming recession fears.

Against expectations of a modest 0.2% rise in retail sales volumes, the figure jumped by 1.2% for the month of February, highlighting the resilience of the sector. Consumers appeared to have shrugged off living cost squeeze fears and increased spending.

Non-food stores were the biggest contributor to the drive in sales, as second-hand stores, charity shops, and discount stores saw a surge in sales. However, a fall in restaurant and pub sales highlighted a cut-back on going out to eat as the cost-of-living crisis deepened. Ashley Webb, Economist at Capital Economics, warned that the rebound in retail might not be sustainable:

‘At face value, these data further add to the view that the recent resilience in activity is still holding up. But when households’ finances are under pressure, it is possible that any improvement in retail sales will just be met by a softening in non-retail spending (such as restaurants).’

Elsewhere, capping any further gains from a rebounding retail sector, was mixed PMI data. Both the manufacturing and service sectors missed forecasts, but the service sector remains strong, keeping the Pound afloat. Dr John Glen, CIPS Chief Economist commented on the data:

‘A relatively stable result for UK private sector business in March, even with the slight fall in manufacturing output. Customer demand picked up, supported by improvements in inflation rates and a solid rise in service business.

‘The manufacturing sector’s undoing remained falling pipelines of new work. In spite of supply chain strength returning, less work resulted in job shedding and lower purchasing volumes as the sector failed to gain momentum and fell into contraction again.’

Australian Dollar (AUD) Pressured by Contracting PMIs

Meanwhile, the Australian Dollar (AUD) came under modest selling pressure overnight as the latest Judo Bank PMIs missed forecasts and contracted for the month of March.

Output across both sectors eased for the month of March, as both manufacturing and services slipped below the 50 threshold of industry expansion. Services fell to 48.2, and manufacturing dropped to 48.7, with the latter signalling the fourth straight month of shrinking output.

Warren Hogan, Chief Economic Advisor at Judo Bank, commented on the data:

‘The Flash PMI results for March confirm that the economic slowdown that commenced in 2022 is continuing into 2023. The composite output and new orders indexes fell in March to be at the lowest levels since the Delta lockdowns in 2021.

‘The March results are consistent with a soft landing for the Australian economy in 2023 and 2024 as the economy responds to higher interest rates.’

GBP/AUD Exchange Rate Forecast: Hawkish BoE Speech to Buoy the Pound?

Looking ahead, the Pound Australian Dollar exchange rate could see further movement with a speech from Bank of England (BoE) policymaker Catherine Mann. In light of the hawkish speech from BoE Governor Andrew Bailey on Friday morning, any similar comments on how inflation needs to come down, Sterling could climb.

Elsewhere, the risk-sensitive Australian Dollar will head into the weekend trading on market sentiment. Investors will be keeping a close eye on the developing situation in Europe and the banking sector turmoil. Should the crisis worsen, the ‘Aussie’ could slide on waning global market moods.

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