AUD holds strength despite disparate Aussie data

There was a mismatch of data from Australia overnight. The Westpac Consumer Sentiment Index dropped to minus 1.5%, following on from a minus 0.4% reading in August. However, the NAB business survey showed a reading of 13, up from the 11 rating in the previous month and the strongest result since May. In fact, this business sentiment index has been trending higher since it turned around in June. It does appear to be them used by this disparity, hence the GBP/AUD rate is moving in a very small range and has settled back to AUD 1.9445 this morning off to the UK employment data which is covered in more detail below.

Wages up, but employment weaker in the UK

The UK unemployment rate rose to 4.3% in the three months to July. That is up from 4.2% in the previous month, bringing the level of unemployment up to the highest it has been since September 2021. If that isn’t a sign that the UK economy is under pressure then I don’t know what the Bank of England is actually looking for when they consider their next interest rate move. Interestingly though, wages are starting to catch up with inflation, with the headline level of average wages rising by 7.8% in the year to July. When you add in bonuses to those numbers the figure is 8.5%. The BOE dilemma is that it is wage growth that drives inflation and not the unemployment number itself. Although sterling had recovered some strength on Monday, it has slipped a little this morning in the wake of that data. The GBP/USD rate has levelled off at almost exactly $1.25 in the interbank market and the GBP/EUR rate is still trapped in the middle of the €1.16 range. However, volumes are starting to build in the foreign exchange market in the wake of the August doldrums. So further volatility is to be expected.

Euro under pressure as German economy continues to slow

We had further weak data from Germany this morning. In data released by the ZEW Economic Institute, Sentiment produced a minus 15 reading in September and the reading for current conditions dropped to minus 75. That is the worst economic pessimism we’ve seen from this index since August 2020. Germany is rightly seen as the economic powerhouse for Europe; so this kind of pessimism cannot be ignored by the EU authorities or the European Central Bank. Although the euro only lost a little ground against the pound and the US dollar this morning it is certainly trending towards further weakness. Right now the GBP/EUR rate is up to €1.1650 and the EUR/USD rate is down to $1.0725 at the mid-market (interbank) level.