The British pound is lower against the Australian dollar on Friday afternoon despite economic data that some might have thought precluded a cut to UK interest rates this month. An announcement from the World Health Organisation that the coronavirus outbreak in Wuhan China is not an international emergency helped cap selling in Asian currencies.
GBP/AUD was lower by 28 pips (-0.16%) to 1.9137 with a daily price range of 1.91 to 1.922 as of 2pm GMT, with the currency pair stalling beneath weekly highs.
Flash PMIs released on Friday that well exceeded consensus expectations painted the picture of a UK economy on the rebound in January. The country had been mired in political uncertainty in December, so a resounding business-friendly election result has helped turn things around. The UK manufacturing sector is still in contraction but only just while services, which make up the bulk of the UK economy are now in a healthier state of expansion.
The pound has already made solid gains this week, up over 200 pips and 1.2% against the Australian dollar so a kneejerk reaction higher to the data ran into end-of-week profit taking.
Expectations for an interest rate cut by the Bank of England next week have been reduced through the week after data showed UK the unemployment rate had fallen to the lowest on record. The PMI data released on Friday adds to the case to keep interest rates on hold. However, slowing inflation and the longest run of monthly retail sales contractions on record might be good enough reason for some policymakers to want to err on the side of safety and lower interest rates even further.
Depending on the data you look at, the UK monetary policy decision looks likes it is on a knife edge and markets are pricing a 45% chance that rates are cut next week.
By contrast, market expectations for an RBA rate cut have sat around 30% since the much better-than expected Australian employment data this week. While the WHO deems the coronavirus under control, the Australian dollar is less at risk of the kind of selling it saw this week.