- Sterling (GBP) Exchange Rates Rebound – Traders take advantage of low trade weighting
- Australian Dollar (AUD) Exchange Rate Advances – Risk appetite gains as stocks rise
- GBP AUD Exchange Rate Forecast to Hold Gains in the Short-Term – US Dollar weakness may boost the ‘Aussie’ overnight
Following the unprecedented decision by the UK to vote to leave the EU, the Pound dived considerably. Uncertainty among traders caused risk-appetite to withdraw, dragging global equity markets down.
On Tuesday, however, the Brexit selloff halted as stocks advanced and Pound exchange rates rebounded versus most of its peers. Risk-on trade also resumed as investors flocked to high-yielding assets such as the Australian Dollar.
Pound (GBP) Exchange Rates see Modest Recovery despite Ongoing Brexit Uncertainty
In the UK the economic and political landscape has been permanently altered after the shock result that saw 52% of the country vote to leave the EU. The decision not only divided the nation but widened cracks within political parties.
In the immediate aftermath of the vote Prime Minister David Cameron resigned. Meanwhile, Labour leader Jeremy Corbyn is likely to face a vote of no confidence as the majority of his shadow cabinet either resigned or were fired.
The uncertainty surrounding the UK’s political landscape and potential delays to triggering Article 50 of the Lisbon Treaty caused major credit rating agencies to cut the UK’s credit rating.
Standard & Poor’s, Fitch and Moody’s all lowered Britain’s credit rating. S&P said:
‘In our opinion, this outcome is a seminal event, and will lead to a less predictable, stable, and effective policy framework in the UK. We have reassessed our view of the UK’s institutional assessment and now no longer consider it a strength in our assessment of the rating.’
S&P also added that a majority ‘Remain’ vote in Scotland and Northern Ireland ‘creates wider constitutional issues for the country as a whole.’
The British Pound actually rebounded on Tuesday, however, as risk-appetite improved thanks to rising commodity prices and global equity market values.
Sterling also found support as traders took advantage of the very low trade weighting in the hopes of making long-term gains. This suggests that traders are confident that Sterling will recover close to pre-Brexit levels.
Australian Dollar (AUD) Exchange Rates Advance on Risk-On Trade
The fallout from the Brexit vote caused the Australian Dollar to soften as traders flocked to safe-haven assets. This would have been a welcome outcome from the perspective of Reserve Bank of Australia (RBA) policymakers given repeated concerns regarding overvaluation.
The return of risk-on trade on Tuesday, however, has seen the ‘Aussie’ (AUD) climb versus a number of its major peers.
Also aiding AUD gains is comparative US Dollar weakness as safe-haven demand withdraws. Speculation that the uncertainty caused by Brexit will lead to long-term Federal Reserve rate hike delays also bolstered the ‘Aussie’.
There is a good chance that ‘Aussie’ gains will be short-lived, however, thanks to domestic political uncertainty as the federal election draws ever closer.
With market turmoil dominating trader focus, ecostats are having a significantly reduced impact. The drop in Australia’s Weekly Consumer Confidence Index was largely ignored and had no real impact.
GBP AUD Exchange Rate Forecast: Market Sentiment to Drive Movement
As stated above, domestic data is having minimal impact presently. With that in mind it is highly likely that the GBP AUD exchange rate will continue to see movement in response to changes in market sentiment.
Sterling outlook remains clouded, although there is a high chance of further depreciation amid political and economic turbulence.
The Australian Dollar may well expand upon today’s gains if the US Dollar continues to weaken. However, domestic political uncertainty and a likely return to risk-off trade could see the Oceanic currency resume depreciation.
During Tuesday’s European session, the Pound Sterling to Australian Dollar (GBP AUD) exchange rate was trending within the range of 1.7932 to 1.8132.