Support for Soft Brexit Helps Pound Australian Dollar Exchange Rate Recoup Losses
After initially strengthening at the start of last week, the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate tumbled mid-week as the UK’s trade balance data disappointed.
Despite this, Sterling rallied again at the end of the week as reports suggested that Spain and the Netherlands would be willing to work towards a softer Brexit deal for the UK.
Meanwhile, the Australian Dollar was able to make significant gains on Thursday as data showed Australian retail sales rocketed higher in November.
However, in light of the upbeat Brexit news, the Australian Dollar was not able to hold onto its gains, allowing the Pound to advance against it on Friday.
AUD Climbs on US Dollar Weakness
The Australia Dollar started the week on a stronger footing today, punching higher against the Pound as it takes advantage of US Dollar (USD) weakness.
The downtrend in USD at the start of 2018 appears to be continuing this week as markets increasingly short the currency on bets that other central banks will keep pace with the Federal Reserve’s monetary tightening.
A chart released by the National Australia Bank (NAB) detailing which central banks are likely to hike rates in 2018 further helped to lift AUD.
While the Fed is expected to hike three times this year, the chart forecasts the Reserve Bank of Australia (RBA) may join other major central banks in similarly tightening monetary policy.
Economists at NAB set the odds of an RBA rate hike by August at 50%.
Should the RBA decide to raise interest rates this year it will be the first time since 2010.
Pound Sterling Subdued as Markets Await Inflation Figures
The Pound remains subdued at the opening of this week’s session as markets await tomorrow’s publication of the UK’s latest CPI figures.
Economists predict that after striking a five-year high of 3.1% in November the UK’s inflation rate will have retreated to 3% last month.
A dip is likely to relieve some of the financial pressure on UK households by helping close the gap between inflation and wage growth, something that would help consumer spending rebound in 2018.
However, any fall in inflation would also give the Bank of England (BoE) a little more room to breathe, potentially lessening the chance of an interest rate hike this year.
Pound Australian Dollar Forecast: More Brexit Uncertainty Ahead?
Looking ahead, movement in the GBP/AUD exchange rate in the first half of the week is likely to be driven by the release of UK inflation figures tomorrow.
However the Pound could also be influenced by further Brexit uncertainty as members of the Conservative government continue to clash over what sort of Brexit deal should be pursued by the Prime Minister.
Meanwhile, the Australian Dollar could see some movement towards the end of the week as Australia publishes its latest labour report, with an expected drop in employment growth in December likely to weigh on market sentiment.