Australian Construction Accelerates, AUD Exchange Rates Initially Gain
The Australian Dollar Pound Sterling (AUD/GBP) exchange rate fluctuated on Wednesday as markets responded to a robust performance in Australia’s construction sector and growing caution ahead of the Bank of England’s (BoE) first interest rate decision of 2018.
The Australian Industry Group’s performance of construction index climbed to 54.3 in January, up from December’s score of 52.8.
This rebound occurred on growth in new orders, but also on a leap in employment; a reflection of an elevated level of work.
‘Rising employment reflects the elevated level of work at present and the need for businesses to ensure sufficient resources are in place to meet future demand’, the Ai Group said.
After the robust performance of Australia’s manufacturing and service sector reports today’s construction assessment provides yet another indication that the Australian economy seems to be gathering speed in early 2018 – a prospect that helped shift AUD/GBP into the ‘Aussie’ Dollar’s favour.
Pound (GBP) Exchange Rates Limited by Ongoing Brexit Uncertainty
Pound (GBP) exchange rates continued to remain under the thumb of Brexit related uncertainty on Wednesday, falling as negotiations on the transitionary period failed to present much in the form of progress.
The UK’s Brexit ‘War Cabinet’ is meeting today (an effort to try and reach a breakthrough on Britain’s aims for a future relationship with the EU), but many analysts are sceptical that the UK will be able to give a clear indication of its desired future affiliation.
UK Business Secretary Greg Clark seemed to suggest as much this morning when he declined to give any indication that the government will reveal its plans.
‘This is a negotiation that is about to happen. We can’t guarantee an end state until that has been agreed by both sides’.
In other news a leaked draft paper from Brussels revealed a potential push for the EU to have the ability to restrict the UK’s access to the single market if the European Court of Justice (ECJ) fails to solve a dispute within the two year transitionary period.
This could potentially mean tariffs imposed on goods or the enforcement of customs checks – both measures that could have negative economic ramifications on the UK’s economy.
Whilst controversial, the UK government simply dismissed the significance of the leaked document, however, asserting that it will form part of the ongoing negotiations.
AUD/GBP Exchange Rate Forecast: Volatility Ahead on BoE Rate Decision
The Australian Dollar Pound Sterling (AUD/GBP) exchange rate could encounter some volatility tomorrow as markets respond to the BoE’s latest rate decision.
Whilst the central bank is not expected to raise interest rates on this occasion, markets have grown increasingly hopeful that the Monetary Policy Committee (MPC) will shift towards the hawkish end of the spectrum – perhaps even indicating that a rate hike could occur as early as May.
However, according to Bank Governor Mark Carney and the financial services company UBS, a rate hike this early will be dependent on progress being made in the Brexit transitionary process, as this would allow trade talks to begin, thus removing market uncertainty and prompting businesses to resume investment measures.
If the BoE’s accompanying statement has changes that reflect a hawkish move in May then the AUD/GBP exchange rate could come under pressure.
If central bank proves cautious, however, (perhaps citing the recent trifecta of disappointing private sector reports), then the Australian Dollar could resume its lead.