Failure to Reach Brexit Breakthrough Drives Down Pound Australian Dollar (GBP/AUD) Exchange Rate
As last night’s Brussels dinner failed to yield the hoped-for breakthrough in Brexit talks the Pound to Australian Dollar (GBP/AUD) exchange rate slumped sharply.
Support for Pound Sterling (GBP) weakened significantly in response to the lack of agreement reached at the meeting, given the high level of market expectations ahead of the fact.
Although Boris Johnson and Ursula von der Leyen did ultimately agree to extend discussions until Sunday this was not the outcome that investors wanted to see.
While the possibility of an agreement remains on the table the odds of a no-deal scenario rose markedly on Thursday, leaving GBP exchange rates on the back foot.
With the UK economy already showing signs of a slowdown in the face of Covid-19 disruption and Brexit-based uncertainty the prospect of a greater deterioration in momentum weighed heavily on the Pound.
Slowdown in UK Growth Momentum Puts Pressure on GBP Exchange Rates
As the monthly UK gross domestic product reading for October fell in line with forecasts, dipping from 1.1% to just 0.4%, this added to the bearish mood of GBP exchange rates.
This weak showing raises the risk of the economy experiencing a fresh contraction in the fourth quarter, creating a double-dip recession even before the end of the Brexit transition period.
The sharp decline of the NIESR monthly GDP tracker for November offered additional evidence of weakness within the economic outlook.
Even so, if the UK and EU can reach an agreement at the weekend this could see the GBP/AUD exchange rate rally sharply next week.
If the two sides manage to avoid a no-deal Brexit scenario the appeal of the Pound may improve sharply, buoyed by the reduced risk of an extended economic slowdown.
On the other hand, a lack of resolution for the Brexit situation could force GBP exchange rates to shed even further ground in the days ahead.
Dovish RBA Meeting Minutes Forecast to Weigh on Australian Dollar Demand
While a lingering sense of market risk appetite continued to support the Australian Dollar (AUD) this could prove fragile.
Demand for the antipodean currency may well diminish as the release of the Reserve Bank of Australia’s (RBA) latest set of meeting minutes approaches.
If the minutes prove dovish in nature this could put AUD exchange rates under renewed pressure, with investors speculating over the possibility of further policy action to come in the months ahead.
Unless the central bank expresses some degree of optimism over the economic outlook the Australian Dollar looks set to fall out of favour once again.
Any resurgent strength in the US Dollar (USD) could also weigh on AUD exchange rates, with risk sentiment likely to sour in the face of any signs of greater US economic resilience.
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