Pound Sterling to Australian Dollar (GBP/AUD) Exchange Rate Loses Momentum on Fresh Brexit Uncertainty as Michel Barnier Sinks Backstop Proposal
UPDATE 14:23 BST: Chief EU negotiation Michel Barnier rejected the latest UK backstop proposal on Friday afternoon, leading the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate to weaken.
As Barnier noted that a backstop could only apply to Northern Ireland and not the entirety of the UK this cast fresh doubt over the likelihood of the two sides coming to an agreement on Brexit any time soon.
With the issue of the Irish border still far from resolved Pound Sterling (GBP) exchange rates look set to remain under pressure.
‘Backstop means Backstop,’ Barnier told reporters in Bruseels.
To avoid any confusion between the EU backstop & the UK customs paper: I reiterate that our backstop cannot apply to whole UK. 4 freedoms are indivisible. This is not a rejection of the UK customs paper on which discussions continue. #Brexit
— Michel Barnier (@MichelBarnier) June 8, 2018
Pound Sterling to Australian Dollar (GBP/AUD) Exchange Rate Climbs Higher on BoE Rate Hike Bets
Hopes that the Bank of England (BoE) is on course to raise interest rates in August have helped to boost the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate.
Comments from BoE deputy governor David Ramsden prompted Pound Sterling (GBP) to trend higher, with markets encouraged by signs of greater optimism amongst policymakers.
A steady reading from May’s BoE/TNS inflation attitudes survey offered further support to GBP exchange rates on Friday morning.
As the survey suggested that inflationary pressure is likely to remain elevated over the coming months this added further fuel to bets of an August rate hike.
While a significant degree of Brexit-based uncertainty continues to hang over the domestic outlook, given continued divisions within Theresa May’s cabinet, this has not been enough to weigh down the Pound.
Global Trade Worries Offer Support to GBP/AUD Exchange Rate
With market risk aversion on the up ahead of the G7 leaders’ summit the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate has appreciated.
Signs of increasing US protectionism weighed heavily on demand for the risk-sensitive Australian Dollar (AUD), even though Australia was previously spared from heavy steel and aluminium tariffs.
If the US continues to pursue a more isolationist standpoint and global trade tensions rise further this could see the GBP/AUD exchange rate pushed higher.
Worries over the upcoming US-North Korea summit are also likely to keep the Australian Dollar under pressure in the near term.
Although Chinese imports continued to pick up in May this was not enough to offer AUD exchange rates any particular measure of support ahead of the weekend.
Rising UK Inflation Forecast to Boost GBP/AUD Exchange Rate
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate looks set for further volatility in the week ahead as markets await the latest UK wage growth data.
As lacklustre growth in average earnings has been cited as a concern by BoE policymakers in the past any improvement is likely to boost the Pound.
Focus will also fall on May’s consumer price index report, which investors hope will show a fresh uptick in price pressures.
A stronger inflation reading would give policymakers further incentive to raise interest rates sooner rather than later, to the benefit of GBP exchange rates.
On the other hand, another drop in inflation could leave the GBP/AUD exchange rate on a sharp downtrend on Wednesday.
Pound Sterling to Australian Dollar (GBP/AUD) Exchange Rate Vulnerable to Tighter Australian Labour Market
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate could also come under pressure on the back of the latest Australian labour market data.
If the unemployment rate falls from 5.6% as forecast this is likely to encourage renewed demand for the Australian Dollar.
Even though the Reserve Bank of Australia (RBA) looks set to leave monetary policy on hold for the foreseeable future a strong showing from domestic data could still benefit AUD exchange rates.
Any uptick in June’s consumer inflation expectations reading may dent the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate.