The GBP AUD exchange rate was 0.25% higher on Monday after the UK and Australia saw OMI business activity data. The UK number was a disappointment, but the Australian reading was worse with the economy dumping into contraction territory due to the virus effects on the services sector.
The GBP to AUD rate was trading at 1.8910 after a bounce from last week’s selling.
Australian dollar pressured after big miss in business data
The Australian Dollar has started the week under pressure with the release of PMI data on Monday. The January numbers showed that the IHS Markit Australian Composite PMI fell to 45.3 from 54.9 previously. The 50 number marks the difference between expansion and contraction and the Aussie economy is obviously struggling.
In the UK, the expectation was for a reading of 55, but the actual figure was 53.4, but that means the UK manufacturing and services sectors are still in growth territory.
Chris Williamson, IHS Markit’s chief business economist, said of the UK figures:
“A resilient rate of economic growth in the UK during January masks wide variations across different sectors. Consumer-facing businesses have been hit hard by Omicron, and manufacturers have reported a further worrying weakening of order book growth, but other business sectors have remained encouragingly robust.”
“Looking ahead, while the Omicron wave meant the hospitality sector has sunk into a third steep downturn, these restrictions are now easing, meaning this downturn should be brief. Many business and financial services companies have, meanwhile, been far less affected by Omicron and saw business growth accelerate at the start of the year.”
The latest numbers have some traders fretting that the BoE may not raise rates for a second month, but PMI is also being affected by the inflationary pressures and that should sway it, with markets expecting a move higher to 0.50%.
“With inflationary pressures remaining elevated at near-record levels, this all adds to the likelihood of the Bank of England hiking interest rates again at its upcoming meeting”.
Is the virus ‘endgame’ approaching for Australia?
The Coronavirus pandemic is nearing its “endgame’’ as global immunity reaches higher levels after the spread of the Omicron variant. Experts are now predicting at least one quarter of Australians in the most populous states will have caught the virus.
The World Health Organisation has predicted the end of the pandemic with an expected “period of quiet” as the Omicron waves subside.
New South Wales Chief health officer Kerry Chant has said there was cause for optimism that the Omicron spread is subsiding in the country’s most populous state, with the 14-day average also declining in Victoria. “I think we need to have a sense of optimism; I’m incredibly optimistic,” Dr Chant said.
The pound sterling has been strong as the country benefited from an earlier release from lockdowns. This week could see volatility with the Prime Minister facing a potential no confidence vote if the Sue Gray inquiry is critical of the PM’s appearance at a lockdown party.
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