Pound Sterling to Australian Dollar (GBP/AUD) Exchange Rate Hits 11-Month Low Amid Latest Brexit Row

GBP/AUD Exchange Rate Extends Slump as Pressure Mounts on May Over Brexit Legal Advice

UPDATE: The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate continued to weaken over the course of the day, slumping to an eleven-month low.

Political developments put further pressure on Pound Sterling (GBP) as Theresa May’s government came under fire for refusing to publish the full legal advice it received on the proposed Brexit deal.

With markets still sceptical of the chances of the deal winning sufficient support among MPs this naturally limited the appeal of the Pound.

Thaw in US-China Trade Tensions Drags Down Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate

As the US and China took a step back from any fresh escalation of their trade dispute the Australian Dollar (AUD) surged higher.

Demand for the risk-sensitive Australian Dollar picked up sharply on reports that the US will delay the imposition of additional tariffs for ninety days, creating a window for further negotiation.

While there was some variation between the official accounts of US and Chinese officials as to the details of Saturday’s agreement this was not enough to prevent a bout of market optimism.

The news also helped to overshadow November’s disappointing Australian manufacturing PMI, which slumped from 58.3 to 51.3.

Although the index remained within a positive state of expansion this sharp slowdown suggests that the Australian economy remains under pressure in the fourth quarter.

Stronger UK Manufacturing PMI Fails to Boost Pound Sterling (GBP) Exchange Rates

November’s UK manufacturing PMI, meanwhile, proved more encouraging in nature, strengthening from 51.1 to 53.1 on the month.

This solid improvement in sector growth offered some support to Pound Sterling (GBP), easing market concerns over the underlying health of the domestic economy.

However, this robust showing failed to boost the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate as signs pointed towards continued weakness in exports.

With international demand for UK products shrinking and manufacturing sentiment remaining muted the economic outlook still looks rather weaker than GBP investors would like.

As the increase was largely driven by businesses stockpiling in anticipation of Brexit disruption the PMI appears less of an indicator of economic health than hoped.

Steady RBA Interest Rates to Limit Australian Dollar (AUD) Support

With no change expected from the Reserve Bank of Australia’s (RBA) December policy meeting the mood towards the Australian Dollar could sour overnight.

As markets still expect the RBA to leave interest rates on hold for some months to come the potential for fresh AUD exchange rate gains appears limited.

Unless policymakers show signs of greater optimism over the outlook of the economy the Australian Dollar looks vulnerable to selling pressure.

If the RBA takes a more cautious view this could also weigh heavily on AUD exchange rates, even if the general sense of market risk appetite remains elevated.

GBP/AUD Exchange Rate Volatility Forecast on UK Services PMI

Further volatility is likely in store for the GBP/AUD exchange rate on Wednesday with the release of November’s UK services PMI.

As the service sector accounts for more than three quarters of the UK’s economic activity a strong showing here could see the Pound rallying sharply across the board.

However, as forecasts only point towards a modest uptick from 52.2 to 52.5 on the month the positive impact on GBP exchange rates could prove muted.

If sector sentiment remains generally negative this is likely to keep the Pound under pressure, with uncertainty over Brexit still casting a significant shadow over the UK economy.

As long as the chance of a no-deal Brexit persists the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is unlikely to find much in the way of sustained positive momentum.

Hannah Wilson

Contact Hannah Wilson