Brexit Resignations Leave Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Under Pressure
As Brexit secretary Dominic Raab and other ministers resigned over Theresa May’s proposed Brexit deal the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate slumped sharply.
The departures sparked a wave of selling for the Pound as hopes of the deal making it through Parliament diminished.
With the risk of a no-deal Brexit rising once again the earlier sense of market optimism was quickly reversed, sending the GBP/AUD exchange rate sliding to a three-month low of 1.75.
Even though May’s cabinet approved the deal on Wednesday evening markets are wary of the threat to the prime minister’s position.
Increasing discontent among MPs carries the risk of prompting a leadership challenge against May, raising the potential of further political unrest in the weeks ahead.
A surprise contraction in monthly UK retail sales added to the downside pressure on GBP exchange rates, meanwhile.
Steady Unemployment Rate Encourages Australian Dollar (AUD) Gains
Demand for the Australian Dollar (AUD) picked up, meanwhile as October’s raft of Australian labour market data bettered expectations.
October’s unemployment rate held steady on the month at 5.0%, defying expectations of an increase, even as the corresponding participation rate picked up.
With a larger number of Australians now active in the labour market confidence in the outlook of the wider economy improved.
Although the latest consumer inflation expectation reading proved less encouraging, showing a dip from 4.0% to 3.6%, this was not enough to weigh down the Australian Dollar.
The tightening labour market could prompt the Reserve Bank of Australia (RBA) to maintain a hawkish policy bias, giving AUD exchange rates room to push higher.
However, with fresh Australian data thin on the ground in the days ahead the Australian Dollar could come under pressure as a result of global market risk aversion.
Fears of No-Deal Brexit to Keep GBP/AUD Exchange Rate on Back Foot
Brexit developments are likely to remain the key driving force of the GBP/AUD exchange rates in the near term as markets weigh up the odds of the proposed agreement sticking.
If MPs continue to push back against May’s plan the Pound is likely to lose further ground against its rivals.
Fears over the prospect of a no-deal Brexit could keep the Pound under pressure for some time to come, given existing signs of weakness within the UK economy.
Even so, as analysts at ABN AMRO commented:
‘All told, we think parliament will pass the deal to avoid a chaotic No-deal outcome. However, this is with a low conviction level. If parliament opposes the deal and the government collapses, a new government could be returned to push through an agreement, whether Conservative or Labour. However, there continues to be a material risk of a No-deal Brexit.’
Until markets see a Brexit deal agreed, though, the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate may struggle to return to a positive footing.