By Jon Beddell
Foreign Currency Market Update – GBP / AUD Update
As the UK effectively ground to a halt over the last two weeks the celebrations were notably absent from the markets as Sterling continued to slide against most of its counterparts.
Last week’s main event (aside from the wedding) was the announcement of first quarter GDP, which came in at 0.5%, exactly in line with estimates. Sterling rallied momentarily but soon resumed the general weak tone. Interest rate expectations have been scaled back over recent weeks as a slight moderation in inflation, and the uninspiring growth data keep the Bank of England split on direction. With the rate cycle already reaching a possible peak in Australia (they kept rates at 4.75% at today’s meeting), and now starting to bite in Europe, for Sterling it’s a case of always the bridesmaid and never the bride.
Sterling was already starting from a loose footing in London this morning, so a weak manufacturing report was all the excuse it needed to head lower. The Purchasing Managers Index for Manufacturing came in at 54.6, well below the 57.5 reading expected, emphasising the fragility of the recovery and giving the BoE yet more ammunition to do nothing at Thursday’s monetary policy meeting.
This week’s data calendar will be dominated by house price surveys from Halifax and Nationwide tomorrow, followed by the interest rate decision on Thursday.
The technical outlook is very negative. Sterling is now testing record lows around 1.5150, and looks set to lose more ground if we close below this level today. The tide is very much in favour of a weaker pound, and in this climate we are urging clients to take a cautious approach and hedge any exposure now.