The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate tumbled on Monday as investors ditched the British asset in response to less-than-impressive UK data.
Before the weekend commodity-driven currencies like the Australian Dollar were given a boost as the US Non-Farm Payrolls report, one of the most influential ecostats on the US calendar, failed to hit forecasts and instead heightened concerns relating to the US economic outlook.
With the US economy adding far fewer positions than forecast and average earnings staying on hold, the odds of the Federal Reserve adjusting borrowing costs in October declined dramatically and the US Dollar dropped accordingly.
Although fears for the global economy have seen some investors bet that central banks like the Reserve Bank of Australia (RBA) will cut interest rates in order to combat the threat of contagion, the ‘Aussie’ was still able to rise on the prospect of US interest rates remaining lower for longer.
The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate was able to extend gains during Monday’s European session as the Pound broadly softened in response to weak UK service sector data.
The UK’s Services PMI moved closer to the 50 mark separating growth from contraction in September instead of showing the projected increase in output, a result which weighed on BoE interest rate hike expectations.
Markit economist Chris Williamson said of the result; ‘Weakness is spreading from the struggling manufacturing sector, hitting transport and other industrial-related services in particular. There are also signs that consumers have become more cautious and are pulling back on their leisure spending, such as on restaurants and hotels. Wider business service sector confidence has meanwhile also been knocked by global economic worries and financial market jitters’.
During the local session the Australian Dollar to Pound Sterling (AUD/GBP) exchange rate could give up previous gains if the Reserve Bank of Australia’s (RBA) policy statement hints at the possibility of additional easing taking place in the near future.
Market analyst Angus Nicholson observed; ‘There has been a range of weakening local data, particularly from the property sector of late. If there is any mention of that in the RBA’s statement and if they express concern about the local economy there could be a sharp selloff in the Aussie and this is what is weighing on the unit this afternoon.’
Any indication that another rate cut could take place before the end of the year could potentially see the Pound return to trending around 2015’s best rates.
However, if the RBA is more hawkish than investors expect the Australian Dollar to Pound Sterling (AUD/GBP) uptrend could continue ahead of the Bank of England’s (BoE) own interest rate announcement.
The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate was trending in the region of 0.4658 while the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate was trending in the region of 2.1466.
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