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Pound Australian Dollar (GBP/AUD) Exchange Rate Faces Downside Pressure as Brexit Progress Fails to Materialise

Australian Dollar Currency Forecast

Lack of Brexit Negotiation Progress Limits Pound Australian Dollar (GBP/AUD) Exchange Rate Support

As the latest round of Brexit negotiations ended without progress the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate remained under pressure.

Demand for Pound Sterling (GBP) weakened in the wake of the latest comments from negotiators which highlighted the extent of the division that remains between the two sides.

With only one month left for the UK to request an extension before ending the transition period without a deal becomes inevitable investors were left with little cause for confidence.

Although markets expect to see the UK economy recovering the growth momentum lost in the Covid-19 lockdown by the end of the year a hard exit from the transition period could prompt further disruption.

As long as the economy appears at risk of greater weakness and a potential reversion to World Trade Organisation (WTO) terms GBP exchange rates look set to remain on the back foot.

Threat of Severed US-China Ties Puts Pressure on Australian Dollar

Even so, the Australian Dollar (AUD) struggled to capitalise on its rival’s weakness thanks to resurgent worries over the global trade outlook.

As the Trump administration doubled down on its threats to impose fresh sanctions on China, even floating the idea of cutting ties completely, the general sense of market risk appetite diminished.

While the global economy is starting to show tentative signs of returning to normal in the wake of the Covid-19 pandemic the threat of a renewed trade spat weighed heavily on sentiment.

If relations between the world’s two largest economies continue to sour this could impede the potential for a wider recovery, raising the risk of an even deeper 2020 recession.

Ahead of the release of the Reserve Bank of Australia’s (RBA) latest set of meeting minutes the Australian Dollar may struggle to find any particular rallying point.

Signs of increased caution among policymakers could put a fresh dampener on AUD exchange rates on Tuesday, in spite of recent signs of resilience within the Australian economy.

UK Productivity Slump Forecast to Drive GBP/AUD Exchange Rate Lower

Worries over the health of the UK economy look set to pick up further in the week ahead, meanwhile, with a sharp decline forecast for the first quarter labour productivity index.

A -2.6% drop in productivity would wipe out all of the limited gains made since the financial crisis, leaving the economy in an even weaker position than before.

With the greater impact of the lockdown unlikely to materialise until the second quarter this could weigh heavily on demand for the Pound.

April’s claimant count change figure may also put pressure on the GBP/AUD exchange rate as a solid increase appears inevitable as a result of the Covid-19 crisis.

Unless the data can demonstrate a greater degree of resilience the mood towards the Pound looks set to sour further next week, even if hopes of progress towards a return to normal persist.