Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Jumps After May’s Historic Defeat

Sterling (GBP) Buoyed Against Australian Dollar (AUD) Despite Inflation at Two-Year Low

The Pound Australian Dollar (GBP/AUD) exchange rate rose following Theresa May’s historic defeat in Parliament last night, as her Brexit withdrawal agreement lost by 230 votes, with markets viewing this as a sign Brexit could be delayed.

The Pound (GBP) was further aided by the release of the Australian Westpac Consumer Confidence figures for January, which showed consumer confidence had slumped.

Consumer confidence slid 4.7%, to 99.6, the first time this result has fallen below 100 since November 2017, the largest monthly decline in over three years which has likely weighed down AUD.

Also this morning, the UK Consumer Price Index showed that UK inflation had fallen to its lowest level in around two years, printing as forecast at 2.1% in December.

Pound (GBP) Surges against AUD as ‘Soft’ Brexit Likelihood Increases

Yesterday’s surge in the Pound (GBP) is likely a result of the scale of May’s defeat, with the suggestion that a no-deal Brexit has become less probable; the market has taken the view that a second referendum, a softer Brexit, or an extension to Article 50 are  increasingly likely outcomes.

This was further echoed by BoE Governor Mark Carney this morning, as he stated:

‘Public market commentary, consistent with our market intelligence, that rebound appears to reflect some expectation that the process of resolution would be extended and that the prospect of no-deal may have been diminished.’

After the vote, Labour leader, Jeremy Corbyn triggered a vote of no-confidence in Theresa May’s government, which did little to influence the Pound.

Australian Dollar (AUD) Strengthens on Back of Chinese Loan Figures

Following some weak data released by China at the beginning of this week, the Australian Dollar (AUD) has remained weighed down against Sterling (GBP).

Yesterday saw the Chinese Yuan recover to around a six-month high after hopes US-China trade talks increased, and policymakers gave signs they would implement additional stimulus measures to support the economy, aiding the risk-sensitive ‘Aussie’.

New loans approved by the People’s Bank of China in December revealed a higher-than-forecast increase to 1,080bn, which further aided the Australian Dollar in taking advantage of the weakness in the UK currency due to Brexit pessimism.

Will the Outcome of the No-Confidence Vote Keep Sterling Up?

A second no-confidence vote in Prime Minister, Theresa May will take place this evening although with Democratic Unionist Party (DUP) MPs and Conservative rebels coming out in support of the PM it seems this motion will fail.

Tomorrow could see the Australian Dollar continue to be weighed down, with forecasts for November’s Home Loans data suggesting that there will be a fall of 1.5%.

Australia’s Consumer Inflation Expectation for January could put further pressure on the ‘Aussie’ if the figure decreases from the previous reading of 4%, potentially aiding the Pound in the GBP/AUD pairing.

Hannah Wilson

Contact Hannah Wilson