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Pound Australian Dollar (GBP/AUD) Exchange Rate Slides as UK Election Jitters Grip Markets

Pound Sterling Currency Forecast

Election Jitters Knock Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate into Slump

Support for the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate crumbled as markets finally began to experience jitters over the UK general election.

While the final opinion polls had still pointed towards a Conservative lead investors remain wary of the potential for another hung parliament.

As the pollsters had noted an unusually high proportion of undecided voters over the course of the campaign the potential for some significant swings remains.

With markets having already effectively priced a Conservative majority into Pound Sterling (GBP) this left it exposed to downside pressure on the day.

Even if the election delivers a majority, though, the GBP/AUD exchange rate may struggle to return to its previous multi-month high.

With the unresolved issue of Brexit set to return to the limelight in the coming weeks the potential for a Pound recovery appears limited.

Signs of Continued Fed Dovishness Shore up Australian Dollar (AUD) Demand

After the Federal Reserve signalled its intention to leave interest rates on hold for longer the mood towards the risk-sensitive Australian Dollar (AUD) improved.

As the US central bank appears unlikely to raise interest rates for the foreseeable future, instead leaning more towards dovishness, market risk appetite generally picked up.

Even though concerns remain over the potential imposition of US tariffs on Chinese produce over the weekend this failed to weigh down AUD exchange rates at this stage.

A higher-than-expected Australian consumer inflation expectation index also helped to shore up the Australian Dollar against its rivals on Thursday morning.

However, if talks between the US and China show fresh signs of stalling and markets see reason to expect the US to go ahead with its planned tariffs the mood towards the antipodean currency could sour.

Further UK PMI Weakness Forecast to Drag GBP Exchange Rates Lower

While the fallout of the general election looks set to dominate the outlook of the GBP/AUD exchange rate Monday’s set of flash UK PMIs could provoke some extra volatility.

Forecasts point towards another month of weakness for both the manufacturing and service sectors, keeping both PMIs below the neutral baseline of 50.

As long as the sectors remain in a state of contraction fears over the outlook of the wider UK economy are likely to mount.

The services PMI, in particular, could put pressure on the Pound thanks to the sector still accounting for more than three quarters of UK economic activity.

Another sub-50 reading here would increase the odds of a poor fourth quarter gross domestic product, potentially even pointing towards a negative growth rate.

If the economy appears on track to end 2020 with a contraction the GBP/AUD exchange rate could shed further ground at the start of next week.