The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate seems to be beginning a long-speculated recovery despite Sterling weakness, after a hawkish Federal Reserve decreased global risk-sentiment.
Battered Sterling Starts Modest Recovery Despite GBP Volatility Highs
The risky Australian Dollar’s rally against Pound Sterling may well have ended after the GBP/AUD pair dropped to its lowest point since January 2015, 1.8603. Gradually climbing since, the pairing is currently up around 0.5% and is hovering in the region of 1.8833.
This movement seems unlikely to have been caused by any domestic data or event within Britain. While it is possible that newly released higher-than-forecast retail sales data for UK may have strengthened the Pound slightly, the most influential movement for the ‘Aussie’ comes from across the pond.
Year-on-year retail sales including and excluding auto fuel sales printed positively in the UK this morning, at 4.1% and 3.8% respectively over forecasts of 3.4% and 3.5%.
Despite this, Sterling has not faced a good week as a slew of continued uncertainty resulted in new volatility highs for the historically reliable currency, including a seven-year high for volatility against the US Dollar.
This is widely agreed to be due to ‘Brexit’ bets and debates. On the 23rd of June, now less than three months away, the EU referendum will take place and UK citizens will decide whether or not Britain will exit the European Union.
Fears and leave-sentiment increased this week after terror attacks struck Brussels, the heart of the EU. To some investors and analysts, a ‘Brexit’ now looks more possible than ever and the Pound’s standing in the global economy could dramatically change in such an event, keeping investors away from the currency.
Federal Reserve Policymakers Show Surprisingly Hawkish Attitude as Risk-Sentiment Finally Falls
In perhaps the most influential event to hit the pair this week, some members of the Federal Reserve adopted a surprisingly optimistic attitude towards further interest rate hikes taking place this year.
The Federal Open Market Committee disappointed investors just last week with its announcement that the key interest rate may not be hiked as much as previously forecast in 2015, slashing a forecast of 100 basis points to just 50.
However, continued growth in the North American economy may have altered that dovish attitude a little as some policymakers optimistically teased the possibility of the next hike rate coming as soon as April.
Surprised and excited investors collectively declared that the high-risk season was over as they rushed to support the ‘safe-haven’ US Dollar, with all major players in the risky commodity bloc, including the Australian Dollar, experiencing big losses across the board since yesterday.
The risky AUD had recently experienced a continued period of rallies against its rivals as a slew of optimistic global and commodity news left the AUD with continued good favour amongst investors.
Unfortunately for the ‘Aussie’, the promising anti-risk movements of the world’s most influential economy was enough for investors to favour even the increasingly volatile Pound over it, though GBP weakness has meant that AUD’s losses against it have not been as bearish as in some of the ‘Aussie’s’ other pairs.
Pound Sterling to Australian Dollar (GBP/AUD) Exchange Rate Forecast: Sterling Growth to Continue, or just a Temporary Rally?
With Pound Sterling still gradually rising against the Australian Dollar since the year-low yesterday morning, some analysts and investors believe that the recoil could be poised to continue long-term.
However, after this week’s news caused the most uncertainty and volatility seen in the Pound since the turn of the decade, it’s also highly possible that any Pound rally is temporary at best, even against the risky Australian Dollar.
As April approaches, the June EU Referendum vote draws ever-closer and uncertainty towards Sterling’s already volatile future is likely to rise.
The naturally volatile nature of risk-sentiment also has a considerable chance of reversing once again after investors settle on current Fed excitement, with further movement heavily dependent on the possibility of a new Fed rate hike in April.
UK GDP and Australian Home Sales data is also due next week, with surprising bullish or bearish releases having the potential to slightly skew the GBP/AUD pairing’s movements while global political and economic events demand more influence.
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is currently trending in the region of 1.8833 while the Australian Dollar to Pound Sterling (AUD/GBP) exchange rate trends around 0.5308.