GBP AUD Lower After PMI Data Weakness  

GBP AUD Looks for a Breakout from Recent Levels

The GBP AUD exchange rate was -0.20% lower on Tuesday after both countries saw the release of weaker PMI data. For Australia, manufacturing was seen dropping to 55.3 in the S&P index, while services also slowed to 53. The UK also saw manufacturing dip slightly, but the real weakness was in the services sector where an expected drop was worse and signals further recession risk.

The GBP to AUD weakened to 1.7667 but sterling is showing some stubbornness against the Aussie dollar.

Australian PMI figures show weakness on both fronts

Australia’s economy did not give cheer to the new Prime Minister with both the manufacturing and services sectors seen slower last month.

The Aussie Purchasing Managers Index (PMI)from S&P Global showed the Composite PMI number at 52.5, significantly lower than the 55.9 in the previous month. The breakdown was a Manufacturing PMI number at 55.3, against expectations of 57.8 and the previous figure of 58.8. The Services PMI was better than the 53 estimated but remained lower than the last figure of 56.6.

There was hope for an improvement of diplomatic ties with China after the country congratulated the new Prime Minister. Chinese premier Li Keqiang sent a message to Anthony Albanese ending a year-long freeze in diplomatic connections between the two countries.

“The Chinese side is ready to work with the Australian side to review the past, look into the future to promote the sound and steady growth of their comprehensive strategic partnership,” Li said, according to state-run Xinhua news.

UK sees recession fears with a services PMI slump

The UK economy disappointed in PMI figures with a slump in its key services sector.

S&P Global Composite Purchasing Managers’ Index slumped to 51.8 in May from 57.6 in April, the lowest level since February last year. The preliminary reading was worse than economists’ forecasts which had expected a drop to 57.0.

“The latest data indicate a heightened risk of the economy falling into recession as the Bank of England fights to control inflation,” said Chris Williamson, chief economist at S&P Global.

“Companies cite increasingly cautious moods among households and business customers, linked to the cost-of-living crisis, Brexit, rising interest rates, China’s lockdowns and the war in Ukraine,” Williamson added.

“The collapse in the composite PMI in May is the clearest sign yet that demand is faltering in response to the intense squeeze on households’ real disposable incomes,” said Samuel Tombs, at Pantheon.

Elsewhere, the UK saw a drop in public borrowing figures at £18.6bn, which was £5.6bn lower than the previous year, but still the fourth -highest April since records began. The ONS also estimated that April’s 1.25% national insurance hike will bring in around £18bn this financial year.

Interest rate rises are also likely to pressure the borrowing figures with £4.4bn being the latest figure. Despite any positives, the Chancellor will be under pressure to support families struggling with the rise in price pressures and household bills.

“We must take a balanced and responsible approach to support people now, while also not burdening future generations, and we’re on track to drive public debt down by 2024-25,” Sunak said.

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