Risk-Sentiment and Brexit Uncertainties Pressure Pound Sterling to Australian Dollar (GBP/AUD) Exchange Rate

Pound to Australian Dollar Exchange Rate Fails to Hold Gains as Uncertainties Persist

The Pound to Australian Dollar (GBP/AUD) exchange rate slipped on Friday morning as the Pound (GBP) fell back slightly from days of gains.

GBP/AUD climbed strongly from Tuesday’s half-month interbank low of 1.78 until Thursday, when it reached above the week’s opening levels of 1.80 amid fresh hopes that a no-deal Brexit could be avoided.

This came despite higher market trade-sentiment which supported the Australian Dollar (AUD) this week.

On Friday though, GBP/AUD slipped again due to a combination of this higher trade sentiment, as well as investors selling the Pound back from its highs. At the time of writing the pair trended just below the week’s opening levels.

Pound (GBP) Exchange Rates Slip Back after Days of Brexit-Inspired Gains

Amid a lack of major surprises on Brexit or UK politics last night, the Pound’s (GBP) movement has cooled slightly today. Investors are selling the British currency back from its best levels, as political uncertainty still dominates the outlook.

UK Prime Minister Boris Johnson remains determined to exit the EU by the 31st of October despite the efforts of parliament to prevent a no-deal Brexit.

On top of this, there is also uncertainty over when a general election will be held rather than if. The opposition Labour Party is under pressure to put off an election until November to limit the risks of a possible no-deal Brexit.

According to Mark Haefele, Chief Investment Officer at UBS Global Wealth Management:

‘The main threat to Sterling’s recovery is if Johnson’s Conservative party were to win with a majority in an early election. They could then overturn the legislation requiring them to ask for an extension, increasing the threat of leaving without a deal,’

Australian Dollar (AUD) Exchange Rates Continue to Benefit from Cooling Political Fears

While the Pound’s (GBP) reaction to Brexit developments have dominated headlines this week, the Australian Dollar’s (AUD) performance has been fairly solid as well.

At the beginning of the week, the ‘Aussie’ found support in a less dovish than expected tone from the Reserve Bank of Australia’s (RBA) latest policy decision.

Hopes for the US and China to de-escalate the trade war have also returned this week, as the nations planned a new round of negotiations for the coming month. As China is Australia’s biggest trading partner, this news supported AUD strength.

On top of US-China trade hopes bolstering trade-correlated currencies, cooling political jitters in Britain, Italy and Hong Kong have further boosted market risk-sentiment.

Australia’s August construction PMI, published overnight, beat forecasts but still posted a contraction of 44.6.

Pound to Australian Dollar (GBP/AUD) Exchange Rate Awaits Brexit News and Jobs Data

Next week is expected to be another highly eventful one for the Pound (GBP), especially Monday’s session.

On Monday, UK Parliament will attempt to pass through the bill to prevent a no-deal Brexit. If the bill successfully passes, the Pound could see strong gains as no-deal Brexit fears would lighten.

It is also now expected that Britain’s opposition parties will not vote in favour of a mid-October general election, which would also limit no-deal Brexit chances.

However, even if parliament’s attempts to prevent a no-deal Brexit go smoothly, the Pound’s outlook will remain mixed as there are lingering fears that Prime Minister Boris Johnson will try to find other ways to force Brexit through.

These fears as well as general election uncertainties will limit the Pound’s potential for gains next week. Sterling is unlikely to strengthen too much even if Britain’s job market report impresses on Tuesday.

The Australian Dollar (AUD) is more likely to be driven by data, such as August’s job market data on Friday. Any notable developments in global trade-sentiment could also influence the Pound to Australian Dollar (GBP/AUD) exchange rate.

Josh Jeffery

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