UK public sector net borrowing rose further than forecast in April, indicating a greater widening of the domestic deficit and putting additional pressure on the Pound.
This did not encourage particular confidence in the outlook of the UK economy, with the 2017-2018 fiscal year getting off to a sluggish start.
Given the uncertainty that continues to surround the matter of Brexit it seems unlikely that pressure on the public finances will recede in the near future, limiting the appeal of Sterling.
Increasing doubt over Theresa May’s ability to secure a significantly increased Tory majority in the June election also weighed on GBP exchange rates at the start of the week.
While May performed a swift U-turn over her controversial proposed social care reforms this failed to offer the Pound a substantial rallying point.
Political jitters look set to maintain some degree of downside pressure on the Pound Australian Dollar exchange rate ahead of the general election, particularly if the Tory rhetoric on Brexit remains hard.
Confidence in Sterling is unlikely to pick up in response to the second estimate of the UK first quarter gross domestic product, which is forecast to show no particular revisions.
If the details of the report add to the bearish view of the domestic economy then the Pound is likely to extend its recent losses further.
A modest uptick in the ANZ Roy Morgan weekly consumer confidence index offered support to the Australian Dollar, meanwhile.
With risk appetite improving in response to a weaker US Dollar demand for the antipodean currency has remained heightened.
Following April’s unexpectedly positive Australian labour market data confidence in the health of the domestic economy was bolstered, despite the notoriously volatile nature of the employment data.
As a result the odds of the Reserve Bank of Australia (RBA) returning to an easing bias in the near future seemed to diminish, encouraging investors to pile back into the ‘Aussie’.
Reflecting on the data, analysts at ANZ noted:
‘If businesses are in an optimistic mood then that usually flows through to the labour market, which in turn will likely boost consumer sentiment if it is low. We think this pattern is likely to play out over the next few months, with a better performing labour market leading to a stabilisation followed by recovery in consumer sentiment.’
A fresh rallying point could be in store for the Australian Dollar if April’s Westpac leading index shows a similar improvement on the month.
However, even if Australian data continues to prove bullish the GBP AUD exchange rate could return to a stronger footing if there is any fresh weakening in market risk appetite.
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