Pound Australian Dollar (GBP/AUD) Exchange Rate Muted Amidst Political Uncertainty and EU Legal Threat

GBP/AUD Exchange Rate Flat as UK Politics in Focus

The Pound to Australian Dollar (GBP/AUD) exchange rate is rangebound this morning as uncertainty ahead of the upcoming UK election limits the appeal of Sterling.

At the time of writing the GBP/AUD exchange rate is trading at around AU$1.8965, virtually unchanged from today’s opening rate.

Pound (GBP) Subdued as UK Political Uncertainty Drags

The Pound (GBP) is struggling to find momentum this morning as ongoing political uncertainty in the UK continues to drag on the currency.

Current polls indicate the upcoming election is likely to end in a hung Parliament, an outcome which will not inspire confidence from GBP investors.

Also weighing on Sterling sentiment this morning is the news that the EU has launched legal action against the UK over its failure to nominate a candidate for the new European commission.

EU law dictates that all members must nominate a candidate, but Boris Johnson has stated he is unable to make an international appointment due to election purdah rules.

The UK’s defiance of EU law could see it dragged before the European court of justice, which has the power to levy large fines to members.

Australian Dollar (AUD) Buoyed by Renewed Trade Optimism

After falling sharply during the European session on Thursday, the Australian Dollar (AUD) was able to recoup some ground in overnight trade, thanks to renewed US-China trade optimism.

This was initially triggered by reports that China will lift restrictions on the import of US poultry as an act of goodwill.

However the real focus appears to have been on comments made by White House chief economic adviser Larry Kudlow following an event at the Council on Foreign Relations, in which he hinted that a trade deal was close.

Speaking in Washington, Kudlow said:

‘We are coming down to the short strokes. We are in communication with them every single day right now.’

The news reignited hopes a preliminary trade deal could be in place by 2020 and reflected well on the China proxy ‘Aussie’.

GBP/AUD Forecast: UK Politics to Remain in the Spotlight

Looking ahead, amidst a lull in notable UK economic data, movement in the Pound to Australian Dollar (GBP/AUD) exchange rate looks to be dominated by UK political developments.

The race for No10 is set to heat up next week, with the focus on Labour as it launches its 2019 election manifesto.

This could infuse some volatility into Sterling if a warm reception to Labour’s manifesto pledges helps the party narrow the gap with the Conservatives in the polls.

Meanwhile, the focus for AUD investors next week will be on the minutes from the Reserve Bank of Australia’s (RBA) most recent policy meeting.

These may cast the Australian Dollar lower if they reaffirm expectations that the RBA will cut rates again in December.

Later in the week there will also be the publication of Australia’s latest PMI figures, which is likely to heap additional pressure on the ‘Aussie’ if it shows that the country’s private sector slowed in November as expected.

Matthew Andrews

Contact Matthew Andrews