The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate softened on Wednesday as the Australian currency was boosted by dovish comments by Federal Reserve Chairperson Janet Yellen and a better than forecast PMI report from China.
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate hit a session low of 1.960
Domestic Australian data offered support to the ‘Aussie’ as it suggested that the nation’s economy is not as performing as badly as expected. According to the Australian Bureau of Statistics, construction activity slipped to 0.2% in the fourth quarter of 2014, beating economist forecasts for a sharp decline of -1.2%. Another report showed that Australia’s wage price index rose by 0.6% in the last quarter, a figure that matched forecasts and added to the 0.6% in the preceding quarter.
Economic data out of China, Australia’s largest trading partner supported the currency as it showed that manufacturing activity in the world’s second largest economy improved unexpectedly last month.
The flash HSBC/Markit Purchasing Managers Index rose to a reading of 50.1. The figure beat forecasts for a number of 49.5 and was better than the preceding month’s level of 49.7. In a PMI, any number above 50 indicates expansion, whilst a number below indicates contraction.
‘Chinese flash PMI came out and it’s above 50, showing that the Chinese economy has expanded. Output and new orders are all increasing at faster rates. It is also the fact that we had Janet Yellen talking last night. She was not as hawkish as some people wanted. That had a weaker effect on the US Dollar and that carried on Wednesday morning. The Chinese PMI was an added bonus and it the Aussie a leg up,’ said senior market analyst Matt Simpson.
Yellen Comments Send AUD/USD Exchange Rate to 1-Month High
The main driver for movement of the ‘Aussie’ however was the dovish comments by Federal Reserve Chairman Janet Yellen. She told the US Congress that an increase in interest rates was unlikely to occur over the next couple of FOMC meetings. Following the testimony the Australian Dollar and other commodity based currencies surged higher against the weakened ‘Greenback’.
The Pound meanwhile saw its losses restrained after Bank of England policy maker Kristin Forbes suggested that UK interest rates could increase soon if inflationary pressures pick up quickly.
Also supporting the Pound was comments made by BoE Governor Mark Carney and some of his colleagues. Testifying before parliament’s Treasury Committee, they said that the BoE was aiming to bring inflation back to its 2% target within two years.
Sterling could recover lost ground on Thursday if second estimate GDP data comes in positively, a softer than forecast figure however and the currency will weaken.
