GBP/AUD Exchange Rate Slips Lower as Markets await Boris Johnson Brexit Speech

Anticipation ahead of Boris Johnson’s Valentine’s Day Brexit Speech Keeps GBP/AUD Exchange Rate Soft on Empty Data Calendar

The approach of what has been called a ‘liberal’ and unifying speech on Brexit from Foreign Secretary Boris Johnson is keeping the GBP/AUD exchange rate on soft form this morning.

Johnson is expected to call for unity at a time when anti-Brexit parties appear to be redoubling their efforts to halt the UK’s exit from the European Union, and with EU officials repeatedly floating the possibility for Great Britain to change its mind.

As well as defending Brexit, Johnson will attempt to reach out to Remainers and dispel some of the animosity between pro-and anti-Brexit groups.

Johnson will say: ‘It is not good enough to say to Remainers – you lost, get over it; because we must accept that many are actuated by entirely noble sentiments, a real sense of solidarity with our European neighbours and a desire for the UK to succeed.’

Meanwhile, yesterday’s excitement following the stronger-than-expected January UK inflation data seems to have vanished overnight, with Pound Sterling no longer receiving support from the heightened odds of an interest rate hike this year.

This is partly because some analysts were quick to point out after yesterday’s above-forecast price growth reports that there were numerous factors affecting the indices that could prove to be temporary.

Weakening Australian Consumer Confidence and Approach of Key US Data Helps Prevent Further GBP/AUD Exchange Rate Losses

Although the GBP/AUD exchange rate is on soft form today, losses have been prevented thanks to falling Australian consumer confidence and the approach of key US data which could have a significant impact upon market risk-appetite.

The Westpac consumer confidence index for February, released last night, showed a -2.3% drop in the index, taking the overall score down from 105.1 to 102.7.

However, Westpac was upbeat regardless of the fall, explaining that, given the huge volatility seen in the global stock markets during the week the survey was conducted;

‘In those circumstances the 2.3% fall in the Index is a decent result and is now registering a fourth consecutive month where optimists outnumber pessimists. Recall that this sequence follows 12 consecutive months where pessimists were in the ascendency for all but one month.’

Westpac also stressed that ‘the level of the Index is still well below levels typically associated with a robust consumer.’

The Australian Dollar is facing additional downside pressure today thanks to the high volume of top-tier economic releases from the United States and the Eurozone.

Data such as German, Italian and Eurozone-wide 2017 fourth-quarter GDP figures and the US consumer price index data for January could inevitably boost or undermine demand for the stable Euro and safe-haven US Dollar – both of which would have a serious knock-on effect upon the Australian Dollar.

Markets are therefore on hold until after all of today’s key figures have been published so that they can better gauge the long-term outlook of the high-risk Australian Dollar compared to safer alternatives.

GBP/AUD Exchange Rate Forecast to Decline if US Inflation Data Weakens as Expected

The Pound may remain weak today, with Boris Johnson’s speech on Brexit unlikely to have much effect.

The Foreign Secretary is likely to defend Brexit whilst attempting to get Remainers onside; markets are only likely to interpret this positively if Johnson appears to want to soften his approach to Brexit as an olive branch to those who oppose it.

Meanwhile, the Australian Dollar could receive a boost later if US January inflation data prints in line with expectations to show a slowdown in the pace of price growth started this year.

A softer pace of inflation could harm the odds of an interest rate hike from the Federal Open Market Committee (FOMC) next month, providing a boost for the high-yield Australian Dollar to the detriment of Pound Sterling.

Falling rates of US price growth would further benefit the Australian Dollar as it would serve to calm fears on the stock market; the global equity markets have experienced sharp declines over the past few days as fears of higher US inflation threaten to weaken consumer spending and therefore company earnings, as well as pushing interest rates up at a faster-than-expected pace, increasing company liabilities.

A slowdown in inflation would therefore help to soothe the unease seen in equity markets across the world, helping risk-appetite to recover.

Adam Solomon

Adam joined the team at TorFX soon after graduating from University in 2005 with a degree in Journalism. Since then Adam has advanced to become both Head of Trading and Head of Treasury. His keen interest in the currency market and knowledge of what drives exchange rates makes him perfectly positioned to produce regular market updates focused on the movements of the major currencies.

Contact Adam Solomon