Update: Pound Sterling to Australian Dollar Exchange Rate Recovers from Worst Levels With Risk-Sentiment Mixed
While the Pound (GBP) still lacks any real support, the Pound to Australian Dollar (GBP/AUD) exchange rate recovered slightly from its multi-month lows on Tuesday afternoon.
Investors sold the Australian Dollar (AUD) slightly, following comments from US President Donald Trump seemingly confirming that a high ranking North Korea official was headed to the US.
The news bolstered hopes that the US and North Korea could still see a summit in June.
While this supported risk-sentiment, demand for the US Dollar (USD) was so strong on Tuesday that it weighed on currencies like the ‘Aussie’. This made it easier for GBP/AUD to recover.
Pound to Australian Dollar Exchange Rate Tumbles on Hopes of US-North Korea Talks
Weaker demand for risk-correlated currencies briefly helped the Pound to Australian Dollar (GBP/AUD) exchange rate to recover on Monday, but fresh signs of diplomacy between the US and North Korea caused the pair to hit a new low today.
Last week saw GBP/AUD tumble from the interbank level of 1.79 to 1.75. Despite a brief climb to 1.76 early in the morning, at the time of writing GBP/AUD had slumped again and the interbank rate was near its worst levels since January.
Amid a lack of market reasons to support the Pound (GBP), it slumped against a stronger Australian Dollar (AUD) when risk-sentiment bolstered demand for risky trade-correlated currencies like the ‘Aussie’.
The primary reason for GBP/AUD fluctuations since the beginning of the week has been market uncertainty about whether or not the US would still hold a historic summit with North Korea in the coming months.
Pound (GBP) Exchange Rate Limp amid Lack of Fresh Supportive Factors
Demand for the Pound (GBP) has been limited in recent sessions. Last week, a slew of disappointing ecostats, as well as revived Brexit jitters, weighed heavily on the British currency.
Those factors have continued to keep pressure on the Pound despite a lack of fresh Brexit developments or ecostats so far this week.
Markets remain anxious about disagreements on key Brexit topics, such as Ireland’s border, the status of the City of London, and Britain’s membership of the EU customs unions.
Last week, disappointing UK inflation rate results from April and further evidence that Britain’s growth rate slowed to just 0.1% in Q1 2018 left investors concerned about the country’s economic outlook.
Markets are now doubting the Bank of England (BoE) will hike UK interest rates at all in 2018, with August rate hike bets slipping in response to the latest data.
Australian Dollar (AUD) Surges as Perceived Global Risks Lighten
The risk-correlated Australian Dollar (AUD) has been volatile in recent weeks, as the US diplomatic approach to nations like China and North Korea has been filled with uncertainties.
Investors have struggled to tell what direction risk-sentiment is headed in.
On Monday night, concerns that tensions between the US and North Korea are worsening again dragged risky currencies like the ‘Aussie’ lower, helping GBP/AUD to briefly recover.
However, on Tuesday morning fresh reports that high ranking North Korean officials were travelling to the US for possible summit preparations bolstered risk-sentiment again. This had led to stronger demand for the Australian Dollar at the time of writing.
Kim Yong-chol is reportedly due to arrive in the US on Wednesday. He is one of North Korea leader Kim Jong-un’s most high-ranking officials.
Following last week’s news that US President Donald Trump had pulled out of talks, officials from both the US and North Korea have reportedly been working behind the scenes to get the meeting back on track again.
The summit was due to take place on the 12th of June in Singapore.
Pound to Australian Dollar (GBP/AUD) Forecast: Risk-Sentiment Remains in Focus
The Pound to Australian Dollar (GBP/AUD) exchange rate could continue to fall in the coming days if markets become increasingly optimistic about the chances of a summit between the US and North Korea.
On the other hand though, if US and NK officials show doubts that the summit is still possible due to heated rhetoric between the nations, risky currencies like the Australian Dollar (AUD) will become less appealing again.
While some upcoming Australian datasets could inspire movement in the ‘Aussie’, a lack of influential UK data due in the coming days could mean that geopolitics will be the primary driver of GBP/AUD trade this week.
Australia’s April building permits results will be published on Wednesday, followed by private capital expenditure and private sector credit figures on Thursday.
UK consumer confidence data from Gfk will also be published on Thursday, and manufacturing PMI data for May from both the UK and Australia could influence the Pound to Australian Dollar (GBP/AUD) exchange rate on Friday.