Fears of Reduced UK Powers during Transition Drag GBP/AUD Exchange Rate Down
The Pound has fallen slightly against the Australian Dollar today, as EU ministers meet to discuss the exact nature of a Brexit transitional deal.
The main issue for Pound traders is that the UK could end up in a much-reduced state during the transitional period, having to obey EU laws but being unable to challenge them.
Concerns have been voiced by Brexit-supporting officials, including MP Jacob Rees-Mogg, who has warned of the UK becoming a ‘vassal state’ during the transition period.
Another concern is that with so much time lost during the frequently-stalled talks of 2017, the government could rush through 2018’s negotiations without securing key measures.
Talks are expected to take place at a higher frequency in 2018 compared to 2017, emphasising the need to hammer down a final Brexit deal before October.
Australian Dollar to Pound Rate Rises by 0.4% on Optimistic AU Report
The Australian Dollar has advanced by 0.4% against the Pound today, although in other pairings the AUD has fallen against the Chinese Yuan and US Dollar.
This mixed performance may be down to the publication of a divisive economic forecast from Deloitte Access Economics.
On the plus side, the report estimates that global growth and low inflation will provide a dual boost to Australian economic growth in 2018.
However, the report also warns over the impacts of introducing tax cuts in Australia, something touted by the current Turnbull administration.
Deloitte Access Economics Partner Chris Richardson has stated that there is a danger in committing to tax cut plans, saying:
‘That’s great but we shouldn’t repeat old mistakes by taking that and making permanent promises to ourselves.
Labor did it with spending in 2013, the Coalition with tax cuts in 2007, and now 2018 looms as a ‘battler’s budget’ of tax cuts. That undermines budget repair.’
Richardson has also stressed that wage growth remains a key to unlocking Australia’s true economic potential, stating:
‘Jobs growth is excellent news for the few, while wage growth is positive news for the many.’
GBP/AUD Forecast for the Week Ahead
This week, Pound/Australian Dollar exchange rate movement may be caused by UK confidence and PMI activity data, out over Wednesday to Friday.
The first major data, the GfK consumer confidence reading, is tipped to show a disappointing reading of UK consumer confidence in January, likely devaluing the Pound.
Later on in the week, Thursday’s manufacturing PMI is predicted to show growth, while a slowdown is expected for Friday’s construction activity reading.
Such PMI results could leave the Pound to Australian Dollar exchange rate unchanged.
Significant Australian data this week will first come first on Tuesday, when NAB bank releases its business confidence reading for December.
The November growth reading is expected to double, which could push the Australian Dollar to Pound exchange rate higher.
Also out will be Australian inflation rate stats for the fourth quarter. If Wednesday’s figures show growth as predicted, the Australian Dollar could extend any gains against the Pound.