Pound Australian Dollar (GBP/AUD) Undermined By Risk-On Flows

GBP/AUD Exchange Rate Stumbles Amid Increase in Risk Appetite

The Pound Australian Dollar (GBP/AUD) exchange rate plunged on Monday amid a return to upbeat trading conditions.

At the time of writing the GBP/AUD was trading at around AU$1.9162, down roughly 0.6% from Monday’s opening rate.

Australian Dollar (AUD) Strengthens Amid Positive Trading Conditions

The Australian Dollar (AUD) managed to firm against the majority of its peers on Monday amid an increase in risk appetite.

The highly risk-sensitive ‘Aussie’ was able to catch bids as markets returned to cheery trading conditions amid an easing in global geopolitical tensions.

Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown, explained: ‘The FTSE 100 has spring in its step at the start of the week, amid an easing of geopolitical tensions. The pulse of positivity comes in the absence of fresh retaliatory attacks by Israel or Iran and the US flexing its funding muscle and passing a crucial aid package for Ukraine.’

Elsewhere, the commodity-driven currency was also being underpinned by a marginal increase in iron ore and coal prices.

Pound (GBP) Mixed amid Lack of UK Data

The Pound (GBP) wavered on Monday, remaining muted against the majority of its peers but softened against its more risk-sensitive counterparts, amid an absence of significant UK economic data.

As data remained sparse, shifting Bank of England (BoE) interest rate cut speculation likely kept Sterling’s movement limited.

Following dovish commentary from BoE Deputy Governor Dave Ramsden in Washington DC on Friday afternoon, markets quickly repriced their bets on when the central bank will likely begin loosening its monetary policy.

Ramsden said: ‘Given we know the level of the Ofgem price cap for April and also taking account of the freezing of fuel duties in the March Budget, then other things equal we can be confident headline CPI inflation will fall sharply in April, to close to the 2% target.’

This fueled BoE interest rate cut speculation, which saw markets reduce their bets from August to June, which ultimately continued to undermine Sterling sentiment through to Monday’s European session.

GBP/AUD Exchange Rate Forecast: PMIs to Drive Movement?

Looking ahead, the primary catalyst of movement for the Pound Australian Dollar exchange rate this week is likely to be the release of both UK and Australian preliminary PMI data for March, scheduled for release on Tuesday.

Australia’s services sector is forecast to show a marginal slowdown in activity, expected to fall from 54.4 to 54, while the manufacturing sector is due to contract at a slower pace, predicted to come in at 47.9, up from last month’s reading of 47.3.

Should the data confirm a third consecutive expansion in the services sector, the ‘Aussie’ could catch fresh bids. However, should the manufacturing data print below expectations and show a more significant downturn, this could cap any potential

AUD gains.

Turning to the pound, UK services are forecast to report another strong figure, expected to print at 53, well above the 50 level that marks expansion and may in turn lift Sterling sentiment. As the manufacturing index is also expected to print above the 50 level, this may see GBP exchange rates strengthen.