Pound to Australian Dollar Exchange Rate Fails to Hold its Ground as Brexit Fears Return
Since UK Parliament voted down amendments to take more control over the Brexit process on Tuesday, the Pound (GBP) has been less appealing and this has left the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate less appealing.
After GBP/AUD started the week at the level of 1.8395 and trending on a fairly sturdy note, the pair has tumbled since Tuesday evening. GBP/AUD has shed over three cents already and currently trends near this week’s low of 1.8055.
GBP/AUD has now shed over half of last week’s surge, as investors become more anxious that time is running out on Brexit and a No-deal Brexit is still a high possibility.
The Australian Dollar (AUD) has been able to capitalise on the Pound’s fresh weakness, demand bolstered by fresh market risk-sentiment and some surprisingly strong Australian ecostats.
Pound (GBP) Exchange Rates Slump as No-deal Brexit Fears Return
At the beginning of the week, investors were so hopeful that a No-deal Brexit could be avoided that the British Pound was able to hold onto most of the major gains it saw last week.
However, Tuesday’s UK Parliament Brexit debate served as a kind of reality-check for markets, as signs that MPs were still nowhere near to agreeing on a Brexit deal caused No-deal Brexit fears to revive.
There are now less than two months until the UK is set to formally leave the EU, and there is no indication that a deal or plan is anywhere close to being able to pass into UK law.
Parliament voted to renegotiate the controversial Irish backstop, but the EU has immediately responded that all its member states were united in saying that its stance would not change.
This worsened concerns that nothing would change in the government’s latest renegotiation attempt.
Some analysts, such as Deutsche Bank, have suggested taking profits from the Pound’s recent surge since Parliament debate. According to Oliver Harvey, Deutsche Bank Strategist:
‘As well as increasing the risk of a crash Brexit by accident, it should not be positive for economic confidence which (…) is already deteriorating due to political uncertainty’
Australian Dollar (AUD) Exchange Rate Jumps on Federal Reserve News and Australian Data
US-China trade tensions worsened this week and put pressure on the Australian Dollar earlier in the week, but despite this the Australian Dollar has seen stronger demand since Wednesday.
Wednesday’s Asian session saw the publication of Australia’s Q4 inflation rate results, which beat expectations in both major prints. This doused Reserve Bank of Australia (RBA) interest rate cut bets, which made the ‘Aussie’ more appealing.
It was followed in Wednesday’s American session by the Federal Reserve’s January policy decision, in which the bank took a cautious tone on monetary policy despite the hawkishness it had shown in recent months.
This made investors more confident that the Fed would not hike US interest rates this year and bolstered appetite for taking risks, so the risky trade-correlated Australian Dollar saw a rise in demand overnight.
Speaking of trade, the Australian Dollar saw another boost this morning from Australia’s Q4 export prices results. Despite global trade jitters last year, Australian export prices rising more than expected made investors more confident in Australian trade.
Pound to Australian Dollar (GBP/AUD) Exchange Rate Investors Anticipate Manufacturing PMIs
Unless there are some optimistic Brexit developments that make a worst-case No-deal Brexit scenario look less likely in the coming days, the Pound to Australian Dollar (GBP/AUD) exchange rate is unlikely to recover this week’s losses.
The Pound remains unappealing amid No-deal Brexit fears, and Friday’s UK manufacturing PMI is unlikely to change that. Any shift in tone regarding Brexit negotiations or signs that the Brexit date could be delayed is much more likely to be impactful.
Australian data could still cause some late-week movement in the Australian Dollar however, and could help GBP/AUD recover at the end of the week if it disappoints.
Friday’s Asian session will see the publication of Australia’s January manufacturing PMI, as well as January new home sales stats from HIA.
If they impress investors, GBP/AUD could shed more of its recent gains. Any big developments in US-China trade negotiations could also push the Pound to Australian Dollar (GBP/AUD) exchange rate lower.