Pound Australian Dollar (GBP/AUD) Exchange Rate Slides despite Covid-19 Worries
The Pound Australian Dollar (GBP/AUD) exchange rate slumped, leaving the pairing trading at around AU$1.9576.
The Australian Dollar edged higher against a handful of currencies despite an increase in Covid-19 worries.
With new infections growing faster outside of China compared to within, fears have increased about the economic effects of any travel bans, supply chain disruptions and lower demand.
Added to this, fears increased after the United States reported its first coronavirus infection of unknown origin.
On Wednesday, the Centers for Disease Control and Prevention warned of the possibility of community spread after someone who had not travelled abroad or been exposed to a known carrier got the virus in the US.
Worries increased as many expect that other countries could face the same issues as China, which saw its economy paralyzed by efforts to contain the outbreak.
However, weakness in Sterling weighed on the pairing and sent GBP/AUD -0.7% lower.
Pound (GBP) Falls on Expectations of Disappointing Budget
Meanwhile, Sterling remained under pressure on Thursday as disappointment increased over the prospect of next month’s budget.
Chancellor Rishi Sunak is not likely to provide the fiscal stimulus that is expected, and has been told by Treasury officials there is no way to increase public spending as the Prime Minister wants and keep taxes down.
Due to the new Treasury fiscal rules, the chancellor could postpone loosening policy until later this year.
The Pound was unable to make significant gains as recent rallies were fuelled by the possibility of Britain’s finance minister loosening fiscal policy despite UK-EU trade concerns.
Added to this, markets began to price in a higher chance of the Bank of England (BoE) slashing interest rates.
The country’s central bank could be forced to step in and boost the economy if the finance minister is unable to stimulate growth through higher spending.
Investors have priced in a 25 basis point cut, taking rates from 0.75% to 0.5% by August of this year.
Commenting on this, head of BDSwiss, Marshall Gittler noted:
‘No big fiscal push means that if there’s a slump, the burden of reviving the economy will fall on monetary policy.’
Pound Australian Dollar Outlook: Will Covid-19 Fears Send AUD Lower?
Looking ahead to Friday, the Pound (GBP) could edge up against the Australian Dollar (AUD) following the release of UK confidence data.
If GfK shows that consumer confidence has edged higher than expected in February, Sterling will rise.
Meanwhile, the ‘Aussie’ will fall if Covid-19 fears increase, and investors continue to worry about the outbreak being classed as an epidemic.
If the number of cases outside of China continue to rise at the current pace, beating the number of cases inside China, the Australian Dollar will slide.
However, the prospect of a disappointing March UK budget could leave Sterling under pressure and the Pound Australian Dollar (GBP/AUD) exchange rate will remain flat.