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Pound to Australian Dollar Exchange Rate Outlook Undermined by Fresh No-Deal Brexit Shock

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Pound to Australian Dollar Exchange Rate Sheds Last Week’s Impressive Gains

Fresh frustration from the UK and EU over a Brexit impasse, with just over one week until Brexit, led to a deluge of unexpected developments yesterday that sent Brexit confidence and the Pound to Australian Dollar (GBP/AUD) exchange rate plummeting.

Last week saw GBP/AUD surge from 1.8467 to 1.8763, as investors bet against a no-deal Brexit. However, since yesterday’s ultimatums from the EU and from the UK government, no-deal Brexit fears returned once again and GBP/AUD essentially shed those gains.

At the time of writing this morning, GBP/AUD trended close to the level of 1.8425 – even lower than last week’s opening levels.

The Australian Dollar (AUD) was more easily able to capitalise on the Pound’s (GBP) weakness this morning, due to dovishness from the Federal Reserve making investors more willing to take risks.

Pound (GBP) Exchange Rates Blasted by Fresh Brexit Chaos

Hopes from the past week that a worst-case scenario no-deal Brexit could be avoided appear to have been short-lived, with the chance of a no-deal Brexit at the end of next week once again becoming a real possibility.

Yesterday, European Council President Donald Tusk said yesterday that the EU would only grant the UK a short Brexit delay if the UK agrees to its negotiated deal by the end of next week.

However, it still looks like Prime Minister Theresa May’s government’s deal lacks the domestic support needed to pass through Parliament.

Prime Minister May has also ruled out the possibility of a long Brexit extension.

Doubts that the Brexit plan can be passed by the end of next week, combined with doubts that the government would accept a long Brexit extension, led to surging market fears of a no-deal Brexit.

Australian Dollar (AUD) Exchange Rates Jump on Australian Job Stats and Risk-Sentiment

The Australian Dollar was one of the most appealing major currencies overnight, making it easy for the currency to sustain major gains versus a weak Pound.

Demand for the Australian Dollar was supported by a number of factors, but domestically the currency was bolstered by Australia’s latest job market results.

Australia’s latest employment data was mixed, with the employment change coming in lower than expected.

However, while the unexpected slip in Australia’s key unemployment rate to 4.9% was partially due to a surprising fall in the nation’s participation rate, the unemployment rate still impressed investors.

The unemployment rate of 4.9% was the best since June 2011, and bolstered hopes that the Reserve Bank of Australia (RBA) would hold off on cutting Australian interest rates this year.

The Australian Dollar was also supported by higher demand for riskier trade-correlated currencies, following a notably dovish monetary policy decision from the Federal Reserve.

Pound to Australian Dollar (GBP/AUD) Exchange Rate Outlook at Mercy of Brexit Developments

Upcoming UK data and a Bank of England (BoE) decision are likely to be brushed over by investors amid the latest Pound-buffeting Brexit chaos.

With just over a week to go until Brexit, there is still no solution for the issue.

There is a lack of support for the government’s Brexit plan and the Prime Minister does not wish to delay Brexit past June 2019. However, the EU has said it will not allow a short delay unless Brexit passes through Parliament by the end of next week.

There appears to be a deadlock in Brexit with no time to resolve it – leaving a no-deal Brexit next Friday a possibility. This uncertainty means that there could be more plunges ahead for the Pound.

As Brexit runs down to the wire, Pound investors are unlikely to react to much else.

The Australian Dollar, on the other hand, could be influenced by upcoming Australian PMI projections from CommBank, as well as any further shifts in risk-sentiment.

With the US and China set to resume trade negotiations over the next week, the Pound to Australian Dollar (GBP/AUD) is likely to increasingly react to political developments.