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Australian Dollar Pound (AUD/GBP) Slides as Markets Respond to US Dollar (USD) Surge

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US Employment Figures Beat Expectations, AUD/GBP Exchange Rate Slides

The Australian Dollar Pound Sterling (AUD/GBP) exchange rate tumbled on Friday as markets responded to a run of upbeat US employment figures and the ensuing rally for the US Dollar (USD).

Wage growth, perhaps the most pertinent of today’s US employment readings, climbed by 2.9% year-on-year in January, beating the previous period’s 2.7% and the market forecast of 2.5%.

Meanwhile, the US unemployment rate stood at its 17-year low of 4.1%, whilst a whopping 200,000 new jobs were created last month – all elements that boded extremely well for the future of the US economy.

Beyond this, the uptick in wages will be seen as a sign that consumer prices will soon be on the rise, and with them; interest rate hikes from the central bank.

Dennis de Jong, Managing Director at UFX shared this sentiment, stating:

‘Buoyant domestic and global demand, particularly for the manufacturing sector, appear the drivers in higher-than-anticipated numbers, and Trump’s fiscal stimulus package is clearly a shot in the arm for economic growth. (…) So higher inflation is surely on the cares, with taller interest rates set to arrive over the coming months’.

A rise in the value of the US Dollar is often accompanied by a resulting fall in the Australian Dollar, and today has been no different: The US employment figures completely squashed today’s small uptick in Australian producer prices, leaving AUD exchange rates in the dumps.

UK Construction Disappoints, AUD/GBP Exchange Rate Fails to Capitalise

The Pound encountered some trouble of its own on Friday in the form of a disappointing January performance within the UK’s construction sector.

Markit’s January UK construction PMI frustrated the markets by falling to 50.2, missing the previous period’s 52.2 and the target of 52.8.

This marked the weakest rate of expansion within the construction sector in four months, with outright contractions in house building and a drop in new orders hamstringing the reading.

Beyond this, it would appear that clients are holding off on substantial investment projects, citing anxieties regarding a lack of clarity in the UK’s economic future.

Sam Teague, an IHS Markit Economist shared this outlook, stating:

‘Respondents reported increased hesitance among clients to invest in new projects amid heightened concerns over the UK economic outlook’.

Despite the ensuing drop in demand for the Pound the AUD/GBP exchange rate remained firmly in Sterling’s favour, with the ‘Aussie’ Dollar’s upward potential entirely limited by the rally of its US counterpart.

AUD/GBP Exchange Rate Forecast: Volatility Likely as Brexit Talks Resume

The Australian Dollar Pound Sterling (AUD/GBP) exchange rate could encounter even more volatility next week as markets react to the next round of Brexit talks.

UK Brexit Secretary David Davis and the EU’s Chief Commissioner Michel Barnier are due to meet in London on Monday to discuss elements of the transitionary deal, this will then be followed by technical talks in Brussels that will last until Friday, whereupon an update will be released detailing the progress (if any) that has occurred.

There are, however, a number of impasses that could continue to mire proceedings; one of the more pertinent ones being the EU’s insistence that the UK must be subject to new EU laws during the transitionary period.

If no progress is made on this front then markets may have to face the risk of transitionary talks extending beyond March, thus delaying trade talks even longer. This could hurt demand for the Pound, giving the AUD/GBP exchange rate extra room to breathe.

On the other hand, demonstrable progress will be greeted extremely positively; reducing uncertainty for the UK’s economic future and likely bolstering demand for the Pound once again.