Pound to Australian Dollar Advances Limited by Brexit and Bank of England Uncertainties
Due to broad weakness in the Australian Dollar (AUD), the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate has been able to advance this week. However, UK uncertainties have pretended the pair from holding its best levels.
After opening this week at the level of 1.7683, GBP/AUD spent most of the week trending with an upside bias.
On Thursday, GBP/AUD touched on a weekly high of 1.7792, but at the time of writing on Friday the pair trended closer to the level of 1.7750.
Market hopes for a softer Brexit process and a Bank of England (BoE) interest rate hike have helped to support the embattled Pound (GBP), but the British currency’s gains have been limited as economic uncertainties remain gloomy.
The Australian Dollar, on the other hand, has been weighed by continued trade uncertainties as well as disappointing domestic data.
Pound (GBP) Exchange Rates Kept Under Pressure by Brexit Uncertainties
This week’s rise in hopes that a softer Brexit was possible only gave the Pound outlook a limited boost, as too many uncertainties remain to make investors optimistic about the UK economic outlook.
Earlier in the week, UK Prime Minister Theresa May indicated that her Cabinet Office would be taking control of UK-EU Brexit negotiations, rather than the Department for Exiting the EU.
This did bolster hopes that May would be more likely to avoid pressure from hardline Brexit advocating MPs and soft Brexit hopes rose.
However, EU Chief Negotiator Michel Barnier rejected parts of May’s customs union proposal on Thursday night and this caused fresh uncertainties about whether the UK and EU could complete vital Brexit deals in time for the Brexit date in 2019.
On top of this, many businesses have been dialling down activity somewhat amid Brexit uncertainties and this has caused disappointing UK data in recent weeks.
Investors still predict the Bank of England (BoE) will hike UK interest rates next week, but some analysts are concerned that Brexit uncertainties are negative enough for the UK economy to give the bank reason to freeze policy for longer.
Australian Dollar (AUD) Exchange Rates Pressured by This Week’s Underwhelming Data
The Australian Dollar hasn’t had a good week, as persisting uncertainties about the possibility of a US-sparked trade war as well as disappointing Australian data leave the risky trade-correlated Australian Dollar unappealing.
While some strong performance in Chinese markets have helped the Australian Dollar to avoid its worst levels due to China being Australia’s biggest trade partner, the Australian currency ultimately performed poorly.
Australian Dollar weakness was made worse by domestic data. Australia’s Q2 Consumer Price Index (CPI) inflation results fell short of forecasts in Wednesday, then Australian export prices disappointed on Thursday.
Friday rounded off the week with some underwhelming quarterly Producer Price Index (PPI) data from Q2. The yearly figure did beat forecasts however.
Pound to Australian Dollar (GBP/AUD) Forecast: Bank of England (BoE) Decision in Focus
The tone the Bank of England (BoE) takes in its August policy decision next week is likely to be particularly influential in the Pound to Australian Dollar (GBP/AUD) exchange rate forecast going forward.
With Brexit jitters negatively affecting UK data and causing significant uncertainties for the nation’s economic outlook, the action and tone the bank takes will impact how markets feel about the current state of the Brexit process.
While other UK and Australian data will be published throughout the week, Sterling movement may be limited as investors await the BoE decision on Thursday.
Investors generally predict the bank will hike UK interest rates, but if the bank makes a ‘dovish hike’ and hints that it will hesitate to hike rates again any time soon the Pound is unlikely to advance much.
If the bank does leave UK rates frozen and cite uncertainties in the political and economic outlooks, the Pound could plunge even against a weak Australian Dollar.
Speaking of the Australian Dollar, next week’s Australian trade data and retail sales stats also have the potential to influence the Pound to Australian Dollar (GBP/AUD) exchange rate.
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