Pound Slumps Further Versus Australian Dollar amid UK Political Uncertainty

Pound to Australian Dollar Exchange Rate Sheds a Third of Last Week’s Gains

UPDATE: The Pound to Australian Dollar (GBP/AUD) has continued to tumble throughout Tuesday’s European session.

The Australian Dollar (AUD) was one of the day’s more appealing major currencies due to the Reserve Bank of Australia’s (RBA) optimistic tone, but the Pound (GBP) became weaker as well.

Investors sold the British currency this afternoon on fresh concerns about pressure for UK Prime Minister Theresa May to step down.

There is market anxiety that Britain’s government stability could negatively impact the chances of a softer Brexit being agreed.

Pound to Australian Dollar (GBP/AUD) Exchange Rate Slides despite Risk-Off Movement

Following last week’s surge, the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate has slipped this week after the Reserve Bank of Australia (RBA) took a surprisingly upbeat tone regarding monetary policy.

GBP/AUD remains well above last week’s levels though. After opening last week at AU$1.83, GBP/AUD saw solid gains of over four cents throughout the week.

When markets opened yesterday, GBP/AUD briefly surged even higher and briefly touched on an impressive yearly high of AU$1.88. This was the best GBP/AUD level since the Brexit vote in June 2016.

As a result, even though the latest RBA news knocked GBP/AUD back from these highs, the pair is still trending near those best levels at the time of writing, and has sustained most of last week’s impressive gains.

Pound (GBP) Exchange Rates Hold Gains on Hopes over Brexit Compromise

Last week, investors piled into the Pound (GBP) as speculation rose that the UK government was getting closer to reaching some kind of compromise Brexit deal with the opposition Labour Party.

Talks between the UK’s major parties have been ongoing for weeks, but signs of optimism from officials have increased in recent weeks.

Analysts also believe that the urgency officials feel to reach a deal has deepened since last week’s local elections showed the major parties shedding support due to a lack of decisive action on Brexit.

This week, government sources have shown signs of confidence that a breakthrough is possible in the coming weeks. This is helping the Pound to sustain its recent gains.

Australian Dollar (AUD) Exchange Rates Rebound on Reserve Bank of Australia (RBA) Optimism

The Australian Dollar (AUD) has seen fairly poor performance over the past few weeks, and especially last week, as Reserve Bank of Australia (RBA) interest rate cut bets rose and traders avoided risk-correlated currencies.

As a result, this morning’s surprisingly optimistic tone from the RBA’s May policy decision helped AUD to rebound from its worst levels.

The bank indicated that despite weaker-than-expected inflation, the nation’s unemployment rate continued to fall, and this softened the bank’s concerns about slowing growth.

RBA Governor Philip Lowe indicated the bank would be carefully watching Australia’s job market going forward.

However, demand for the trade-correlated Australia Dollar remained limited overall today, as trade tensions between the US and China worsened again.

Pound to Australian Dollar (GBP/AUD) Exchange Rate Investors Await Brexit Developments

Amid a lack of notable UK or Australian data until the end of the week, investors are more likely to react to shifts in sentiment regarding political and trade tensions.

Talks between the UK government and the opposition Labour Party are ongoing. While officials do not expect a breakthrough just yet, if there are any signs of one the Pound (GBP) could be in for further gains.

On the other hand, if talks fall through or if the major parties see significant fracturing ahead of the European elections later this month, the Pound could slump back from its recent strength.

As for the Australian Dollar (AUD), investors are likely to pay close attention to US-China trade tensions this week amid speculation that the US could soon introduce hefty new tariffs on China.

Australia is a trade-heavy nation and China is its biggest trade partner. This means the Australian Dollar is sensitive to shifts in market trade sentiment.

Later in the week, the Pound to Australian Dollar (GBP/AUD) exchange rate could also be influenced by further comments from the Reserve Bank of Australia (RBA), as well as upcoming UK growth data.

Josh Jeffery

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