Pound Sterling to Australian Dollar (GBP/AUD) Exchange Rate Recovery Limited as May Prepares Brexit ‘Plan B’

Brexit ‘Plan B’ Anticipation Limits Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Momentum

As anticipation mounts ahead of the unveiling of Theresa May’s Brexit ‘Plan B’ the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate has struggled to find any real traction.

Hopes of a cross-party consensus on the issue continued to fade over the course of the weekend, with the deadlock over Brexit looking unlikely to see any resolution in the near future.

Political uncertainty remains a significant headwind for Pound Sterling (GBP) as the 29 March deadline draws closer, although the odds of a no-deal Brexit are thought to have fallen.

With the EU showing little enthusiasm for reopening talks on the Irish backstop, which remains a contentious issue among Conservative MPs, May’s ability to shore up support for an alternative deal appears limited.

Slowing Chinese Growth Weighs Heavily on Australian Dollar (AUD) Exchange Rates

The mood towards the Australian Dollar (AUD) generally soured at the start of the week as Chinese growth data proved disappointing.

News that the Chinese economy experienced its slowest pace of growth for 28 years in 2018 offered a degree of support to the GBP/AUD exchange rate.

A general decline in market risk appetite, fuelled by the prospect of a continued slowdown in Chinese growth, left the risk-sensitive Australian Dollar on the back foot.

With the global economy also expected to lose momentum in the year ahead, following China’s lead, this does not bode well for the commodity-driven Australian economy.

Unimpressive Australian Jobs Data to Limit Australian Dollar (AUD) Exchange Rate Upside

AUD exchange rates could experience further weakness if December’s Australian labour market data fails to impress.

Although the headline unemployment rate is forecast to hold steady at 5.1% on the month any signs of a loosening job market may weigh heavily on the Australian Dollar.

With the Reserve Bank of Australia (RBA) already showing reticence towards the prospect of monetary tightening a disappointing labour market report could further dent the odds of an interest rate hike.

Focus is also set to fall on the latest Westpac leading index, which may show a reversal of the previous month’s easing in growth momentum.

GBP/AUD Exchange Rate Looks for Support from UK Wage Growth Data

While Brexit developments are expected to dominate the outlook of the GBP/AUD exchange rate in the near future, November’s UK average earnings figures may offer the Pound a boost.

Forecasts point towards earnings excluding bonuses continuing to grow at 3.3% on the year, still outpacing domestic inflationary pressure.

This would indicate that UK wage growth remains positive even in the face of Brexit-based uncertainty, improving the appeal of the Pound.

A solid showing is unlikely to be enough to alter the policy outlook of the Bank of England (BoE) and increase the odds of an imminent interest rate hike, however.

Even so, any evidence of resilience within the UK economy may help to limit the negative impact of ongoing Brexit worries.

Hannah Wilson

Contact Hannah Wilson