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Pound Sterling to Australian Dollar Exchange Rate Outlook Supported by Fresh Risk-Aversion

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Pound to Australian Dollar Exchange Rate Trends near Monthly Best on Last Week of the Year

Broad uncertainties in global markets caused the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate to surge last week, and while the Pound (GBP) lacked the drive to hold its best levels the pair’s gains were limited when markets opened on Monday.

GBP/AUD opened last week at the level of 1.7531 and spent most of the week climbing. As US political jitters worsened, GBP/AUD surged by over three cents and closed the week at around 1.7940.

This was close to Friday’s best level, 1.7986, which was also the best level for GBP/AUD since mid-November – despite the Pound’s turbulent December.

Broad fears and uncertainties regarding how the Brexit process could unfold in the coming months caused Sterling to slide a little from its best levels, but ultimately the Australian Dollar’s weakness was influential enough to keep GBP/AUD higher.

A combination of global uncertainties, such as slowing growth and US politics, as well as expectations that the Reserve Bank of Australia (RBA) won’t tighten Australian monetary policy any time soon, are keeping pressure on the Australian Dollar (AUD) outlook.

Pound (GBP) Exchange Rate Outlook Marred as Brexit Uncertainties Dominate

Market demand for the Pound is limited, as fears persist regarding how the Brexit process will unfold in the coming months.

There are just over three months until Britain is set to formally leave the EU, on the 29th of March 2019.

No further progress in Brexit is expected to be made until mid-January, when UK Parliament will hold a vote on UK Prime Minister Theresa May’s negotiated Brexit plan.

So far, the UK government has shown no signs that it intends to ask the EU for an extension on Article 50, despite there still being no domestic agreement on what kind of Brexit will happen, and not enough support for the negotiated Brexit plan.

On top of this, the outcome of Brexit is likely to be highly influential for the Bank of England’s (BoE) monetary policy and Britain’s economic activity.

This means the Pound outlook will remain driven by the perceived path the Brexit process will take in the coming months.

For now, Sterling is highly unappealing as many of the paths leading towards a softer Brexit are faced with significant obstacles, and fears persist that with time running out, a worst-case scenario ‘no-deal Brexit’ remains a possibility.

Australian Dollar (AUD) Exchange Rate Outlook Limited by Risk-Aversion

Despite the broad Brexit fears weighing on Sterling, the Pound to Australian Dollar exchange rate has seen a strong advance towards the end of the year as risk-aversion keeps pressure on the relatively risky trade-correlated Australian Dollar.

Demand for the Australian Dollar has actually been supported somewhat over the past month by signs that US-China trade tensions are lightening, making investors less hesitant to buy the ‘Aussie’ due to Australia’s trade connections with China.

However, as some global risks lighten, others worsen.

Trade war fears are lightening, but global growth concerns continue to worsen and this is limiting demand for riskier currencies.

On top of concerns about slowing growth in major economies like the US and China, a poor December for global stock markets and US political jitters causing a US government shutdown over the weekend weigh further on the ‘Aussie’ outlook.

Australia’s domestic news doesn’t give ‘Aussie’ investors much to be bullish about, either. The Reserve Bank of Australia (RBA) remains cautious on Australia’s economy and analysts no longer expect monetary policy to tighten at all over the next year.

Pound to Australian Dollar (GBP/AUD) Exchange Rate Outlook to Focus on Political Developments

So what’s likely to influence the Pound to Australian Dollar exchange rate outlook towards the end of the year, and in early January?

The biggest most immediate influence will be developments regarding the US government shutdown.

Investors may be less willing to buy riskier currencies like the Australian Dollar until the shutdown comes to an end, which could keep GBP/AUD trending near its best levels unless the shutdown comes to an end.

The US Senate may be able to end the shutdown on Thursday, but analysts predict it could persist until the House of Congress reconvenes in January and the Democratic Party takes majority control over the House.

Pound investors may need to wait a little longer for news that influences the British currency’s outlook.

UK Parliament will reconvene on the 7th of January, but the anticipated Parliament vote on Prime Minister May’s Brexit deal will not take place until the middle of next month.

This could leave the Pound outlook gloomy for a few weeks and leave the Pound to Australian Dollar (GBP/AUD) exchange rate outlook to be influenced more by risk-sentiment and Australian Dollar strength.