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Pound Sterling Rebounds Strongly against Australian Dollar after UK Construction Contraction

Published: 2 Aug at 4 PM Tags: Pound Sterling, Dollar Exchange Rate, Australian Dollar Exchange Rate, Currency Exchange, Euro Crisis, UK, Economy,

UK Currency Weathers Outcome of Second PMI Printing This Week

The Pound has been an unusually safe bet for investors of late, having rallied strongly against the majority of its regular peers on what should have been a damaging piece of domestic data.

This was the July finalised construction PMI, which had been forecast to fall further into contraction from 46 to 45.2.

As it stood, a mere -0.1 drop was recorded to 45.9, which served to springboard the Pound up against the bulk of its usual rivals.

The slide of UK construction into a state of contraction occurred before the EU Referendum vote of late June, though whether this undesirable state for the UK sector persists over the coming months remains to be seen.

Should UK PMIs repeatedly drop up to October or November, it is likely that mounting fears and tensions will boil over due to signs that the UK is an for a prolonged state of reduced economic output.

Looking ahead on a shorter timeframe, tomorrow’s UK services PMI for July is expected to fall in the morning from 52.3 to 47.4; such an outcome would surely send the Pound crashing across the board due to the high importance of the services sector to the nation.

Australian Dollar Stages Similar Recovery after RBA Slashes National Interest Rates

As with the Pound, the Australian Dollar has managed to appreciate strongly against most of its peers lately, on the back of a pair of detrimental data releases out of Australia.

The first of these has been the national trade balance outcome for June, which has shown a widening of the current deficit from -2.42bn to -3.19bn.

The second has concerned the national interest rate, or ‘official cash rate (OCR). While the Reserve Bank of Australia (RBA) did cut the OCR from 1.75% to 1.5%, this had largely been factored in by investors beforehand, which greatly minimised any negative influence from the central bank’s decision.

Another factor that has aided the Australian Dollar lately has been the heavy decline of the US Dollar, on widespread concerns about the future performance of the US’s economy.

Looking further ahead, the ‘Aussie’ could well be influenced by tomorrow’s pessimistically-predicted AIG services index result for July, as well as Thursday’s expected reprint in the June retail sales result at 0.2%.

Closing off the week for Australia will be the decline-forecast AIG constriction index, as well as the RBA’s statement on monetary policy.