Lack of Change From Bank of England Weighs Down Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate
After the Bank of England (BoE) voted unanimously to leave interest rates on hold the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate remained under pressure.
Ultimately, the reaction to the BoE announcement proved rather limited, as investors had widely anticipated this lack of policy action.
The meeting minutes sounded a fresh note of caution over Brexit, though, stating:
‘The MPC continues to recognise that the economic outlook could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of EU withdrawal. Since the Committee’s previous meeting, there have been indications, most prominently in financial markets, of greater uncertainty about future developments in the withdrawal process.’
This suggests that rising odds of a no-deal Brexit could give the BoE greater incentive to leave interest rates on hold for longer, to the detriment of the Pound.
Comments from BoE Governor Mark Carney may provoke further movement for GBP exchange rates ahead of the weekend, especially if he underlines this sense of caution.
Surge in Australian Employment Dents GBP/AUD Exchange Rate
An unexpectedly strong surge in Australian employment put pressure on the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate, meanwhile.
Investors were impressed to find that the number of Australians in work had surged by 44,000 in August as the labour market continued to tighten.
While this failed to lower the unemployment rate an uptick in the corresponding participation rate offered greater cause for encouragement.
All in all, this helped to shore up the Australian Dollar (AUD) after a bearish run on the back of mounting global trade tensions.
Even so, with the US and China still on a fresh collision course over trade the gains of AUD exchange rates look rather fragile at this stage.
Any fresh escalation in US protectionist rhetoric could hit the commodity-correlated Australian Dollar heavily.
Fears of No-Deal Brexit to Limit Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Upside
As credit rating agency Moody’s issued a warning that a no-deal Brexit would cause significant harm to the UK economy this added to the more bearish mood of the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate.
With the Conservative Party still split over the Prime Minister’s approach to Brexit the path to a deal still looks decidedly fraught.
Unless Theresa May can generate greater support for a softer form of Brexit the mood towards the Pound is likely to deteriorate further in the weeks ahead.
Even if UK and EU negotiators can reach a deal in November as markets hope some significant hurdles would still remain.
As long as the odds of a no-deal Brexit continue to fluctuate this leaves the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate vulnerable to fresh downside pressure.