Pound Sterling to Australian Dollar Exchange Rate Touches Monthly High after Fed Decision

Pound to Australian Dollar Exchange Rate Fails to Hold Best Levels on Persisting Brexit Jitters

UPDATE: Analysts had expected the Federal Reserve to take a more cautious stance in its December policy decision, but the Fed ended up being hawkish enough to send a shock through markets.

The Fed hinted that at least two more US interest rates were on the way in 2019, despite concerns about slowing global and US growth.

The news caused concerns that the US economy could be damaged by US interest rates being too high. Investors were hesitant to take risks, making it easier for the Pound to Australian Dollar (GBP/AUD) to jump.

However, GBP/AUD was unable to hold its best levels as uncertainty about the Brexit process kept pressure on Sterling (GBP).

Pound to Australian Dollar Exchange Rate Slides in the Afternoon Despite Risk-Aversion

UPDATE: Despite concerns about slowing global growth and weaker commodity trade, the Pound to Australian Dollar (GBP/AUD) exchange rate has slipped further from its weekly highs on Wednesday afternoon.

Pound (GBP) investors became more anxious about the possibility of a no-deal Brexit, as UK and EU officials ramped up plans to prepare for such a scenario.

This, as well as signs of a slowing UK inflation outlook, kept Sterling from benefitting from Australian Dollar (AUD) weakness today.

Pound to Australian Dollar (GBP/AUD) Exchange Rate Strength Limited by Brexit Fears

Despite Australian Dollar (AUD) weakness so far this week, the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate’s gains have been limited as concerns of a possible no-deal Brexit continue to weigh on Sterling (GBP).

GBP/AUD opened this week at the interbank level of AU$1.75 and has since trended with an upside bias.

While GBP/AUD has struggled to hold the weekly high seen yesterday, the pair continues to trend over half a cent above the week’s opening levels at the time of writing.

Movement in the Pound to Australian Dollar exchange rate was little affected by economic data on Wednesday, with markets instead focusing on central bank speculation and shifts in global risk-sentiment.

The primary cause of GBP/AUD gains this week so far has been concern over slowing global growth and lower commodity prices, which is leaving riskier trade-correlated currencies like the Australian Dollar unappealing.

Pound (GBP) Exchange Rates Muted on Expectations of Slowing Inflation, Brexit Jitters

Wednesday saw the publication of Britain’s November Consumer Price Index (CPI) inflation report, which met market expectations.

Inflation rose slightly month-on-month, and slipped from 2.4% to the forecast 2.3% year-on-year

Sterling (GBP) was little influenced by the report itself, and some economists were pleased by news that this meant UK wages were now even higher than inflation.

However, following the report some analysts suggested that this could be the beginning of a prolonged drop in UK inflation. According to Tom Stevenson, Investment Director at Fidelity International:

‘Brexit uncertainty and flagging consumer confidence are showing up in increasingly soggy data, with inflation hitting lowered expectations this morning. Retailers are being forced into heavy discounting to persuade shoppers to open their wallets, offsetting the inflationary impact of the weaker Pound. Clothing was a notable drag.’

This news dragged on Sterling, which has already been unappealing this week as investors are concerned by news that both the UK and EU are ramping up preparation for a potential no-deal Brexit, amid concerns that a deal will not be passed by MPs.

Australian Dollar (AUD) Exchange Rates Slide as Commodities Weaken

Investors have sold the commodity-correlated Australian Dollar this week so far, despite hopes that US-China trade tensions are improving.

This is because recent economic data from China, Australia’s biggest trade partner, has indicated that the world’s second biggest economy is slowing. Concerns of slowing global growth have left investors hesitant to take risks.

On top of this, trade-correlated currencies were further dented by news of weakening commodity prices.

Prices of oil have slumped in recent sessions, briefly touching their worst levels all year amid concerns of oversupply and expectations of further price weakness into 2019.

Prices of iron ore, Australia’s most exported commodity, have also cooled this week following last week’s surge. This further dampened market demand for the Australian Dollar.

Pound to Australian Dollar (GBP/AUD) Investors Await Central Bank and Australian Job News

Brexit uncertainties are likely to persist in the coming sessions, which could mean a muted Pound (GBP) reaction to Thursday’s Bank of England (BoE) monetary policy decision.

The bank is not expected to make any changes to UK interest rates, and as the likelihood of a no-deal Brexit rises, the bank may be hesitant to give much of a 2019 policy outlook at all.

Following analyst speculation this week that UK inflation could slow further in the coming months, the bank’s UK inflation outlook could be slightly influential though. If the bank expects weaker UK inflation, the Pound may shed some of its gains.

Of course, the Australian Dollar (AUD) has been driving GBP/AUD movement so far this week and that is likely to continue.

Reaction to this evening’s Federal Reserve policy decision is likely to impact market demand for riskier trade-correlated currencies like the ‘Aussie’.

After that, Thursday’s Asian session will see the publication of Australia’s November job market report. Any stronger-than-expected Australian jobs data may knock the Pound to Australian Dollar (GBP/AUD) exchange rate lower towards the end of the week.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard