- Pound (GBP) advances as service sector activity rebounds in May to 29 vs 13.4 in April
- Brexit in focus as trade talks continue
- Australian Dollar (AUD) declines as GDP shows end of 28 years of economic expansion
- At 09:15 UTC, GBP/AUD is trading +0.3% at 1.8327
The Australian Dollar is edging lower versus the Pound, snapping a three session winning streak and pausing for breath after a tremendous rally in the previous session. The Australian Dollar settled on Tuesday +0.96% at 1.8203 after hitting a fresh 7 month high.
At 09:15 UTC, GBP/AUD is trading +0.2% at 1.8327 despite a better than forecast Australian GDP print and mounting Brexit pressure.
Brexit talks are set to continue on Tuesday as the UK and EU attempt to make some progress towards a trade deal, ahead of the key Summit later in the month. Progress in Brexit talks has come in fits and busts, despite pressure mounting for a deal to be agreed. Both sides are expected to report on Friday. There has been progress in some areas, although key sticking points remain unresolved.
The market is more optimistic about a meeting between Boris Johnson and EC President Ursula von der Leyen later this month, which could inject some political momentum into the process.
UK service sector data is also supportive of the Pound. Business activity in the sector rebounded in May, jumping to 29 versus 13.4 in April. Investors opted to focus on the positives rather than the fact that the sector remains deep in contraction. The level 50 separates expansion from contraction.
The Australia Dollar has eased back from a fresh 7 month high reached overnight as Australia’s first quarter GDP revealed the end of a 28 year run of economic expansion. The Australian economy contracted -0.3% in Q1, better than the -0.4% contraction forecast. The data supported Reserve Bank of Australia’s Governor Dr Lowe’s beliefs that the covid-19 economic downturn may not be as severe as initially thought.
That said, the growth rate in the second quarter will almost certainly be drastically worse, given that this is when most of the fallout from the coronavirus is occurring.
Investors will now look ahead to the release of Australian trade balance data and retail sales data. Analysts are expecting retail sales data to confirm -17.9% decline, the worst in the survey’s history.
