Pound Australian Dollar (GBP/AUD) Exchange Rate Stumbles as UK Manufacturing Suffers Sharp Contraction
The Pound Australian Dollar (GBP/AUD) exchange rate fluctuated on Monday morning, rising in the early hours on concerns regarding global trade before falling as investors responded to a raft of weak UK industrial stats.
According to the Office for National Statistics (ONS), manufacturing production in the UK plummeted by -1.4% month-on-month in April, down from the forecast of 0.3% and the previous period’s -0.1% and marking the largest fall in over five years.
Meanwhile, industrial production eased to 1.8%, down from 2.9% year-on-year, whilst construction output plummeted by -3.3% year-on-year, worse than the expected -1.4%.
ONS Head of National Accounts Rob Kent-Smith shared his thoughts:
‘Manufacturing fell in the three months to April, with electrical machinery and steel for infrastructure projects seeing reduced production. International demand continued to slow and the domestic market remained subdued’.
This news could force the Bank of England (BoE) to question their assumption that the recent economic slowdown in Q1 this year was temporary.
It could also push members of the Monetary Policy Committee (MPC) away from a rate rise in August – though it is still a bit too early to tell.
Australian Dollar (AUD) Exchange Rates Encumbered by Escalating Trade Tensions
The Australian Dollar (AUD) might’ve come out on top against the Pound on Monday morning, but severe fluctuations in the early hours could prove a persistent threat moving forward.
Investors continue to shy away from riskier currencies like the Australian Dollar in light of worsening trade relations between the US and other superpowers, with the confrontational G7 summit doing little to soothe these fears.
Markets are essentially concerned that worsening trade relations between the US and the EU, Canada and Mexico will result in nations becoming increasingly protectionist, thus limiting the upward potential of the commodity-based ‘Aussie’ Dollar.
Meanwhile, negotiations are still ongoing between the US and China, and whilst China has made a range of concessions, there is still the possibility of relations falling apart.
Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: UK Inflation & the US Fed Rate Decision on the Horizon
The Pound Australian Dollar (GBP/AUD) exchange rate could encounter ongoing volatility this week as investors prepare for a raft of high-importance data from the UK and the US.
The main event this week will be the US Federal Reserve’s rate decision, due on Wednesday, which could have dire ramifications for the Australian Dollar.
Whilst markets have already priced in a rate hike for this meeting, the forward-looking sentiment of the central bank is still up to debate, particularly regarding the number of rate rises this year (will it be 3, or 4?).
If the bank’s forward guidance is hawkish then we could see the ‘Buck’ siphon demand out of the Australian Dollar, thus giving the Pound Australian Dollar exchange rate room to climb.
Beyond this, investors will continue to monitor the global trade situation and Australia’s labour market statistics, due Thursday.
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