Pound to Australian Dollar (GBP/AUD) Exchange Rate Sinks on Broadly Positive Risk Appetite

GBP/AUD Exchange Rate Falls as Fed Chairman Says US Fed ‘Not Out of Ammunition’

The Pound to Australian Dollar (GBP/AUD) exchange rate fell by -0.4% today, with the pairing currently trading around AU$1.87.

The Australian Dollar (AUD) has benefited from a strong start in Asian and European markets this week amidst growing confidence that the worst of the coronavirus crisis has now passed.

Global markets also benefited from a bullish outlook from the US Federal Reserve Chairman Jerome Powell, who said that the Fed was certainly ‘not out of ammunition by a long shot’. As a result, Australia’s S&P/ASX stocks gained by 1%.

Meanwhile, China, Australia’s largest trading partner, is expected to step up its demand for Australian exports. As a result, ‘Aussie’ investors have become increasing optimistic that the Australian economy could receive a boost in the near-term.

However, growing tensions between the US and China are holding back some of the risk-sensitive’s Australian Dollar’s gains today. This follows Beijing’s hitting back against America’s ‘unreasonable suppression’ of China’s tech giant, Huawei.

The Chinese Foreign Ministry commented on Saturday that they would ‘firmly uphold the Chinese firms’ legitimate and legal rights and interests.

The ministry also added:

‘We urge the US side to immediately stop its unreasonable suppression of Huawei and Chinese enterprises.’

Pound (GBP) Sinks as UK Economic Recovery Could be Slower-Than-Expected

The Pound (GBP) suffered today after dovish comments from the Bank of England’s (BoE) Governor Andrew Bailey. Mr. Baily highlighted concerns that the UK’s economic recovery could be slower-than-expected, while increasing risks of a downturn could cause permanent economic damage.

Meanwhile, today will see the Monetary Policy Committee (MPC) member Silvana Tenreyro engage in a webinar discussion on the UK’s policy response. However, any dovish comments or registrations of further monetary support could prove Pound-negative.

Sterling traders are also feeling increasingly anxious ahead of tomorrow’s release of the latest UK ILO Unemployment Rate report.

Andy Haldane, the BoE’s deputy governor, recently said that he expects the UK to face an unemployment crisis not seen since the 1980s.

Robert Chote, the chairman of the Office for Budget Responsibility, expects the UK economy to contract in April. He also added that this could be the worst point of the recession.

Chote commented:

‘The key worry is if you have not just a very sharp downturn in the economy but one that scars its future potential. It’s a matter of psychology as much as the concrete restrictions as well.’

GBP/AUD Forecast: Could Sterling Suffer as UK Unemployment Rises?

Pound (GBP) traders will be awaiting tomorrow’s release of the UK’s ILO Unemployment Rate report for March. If this confirms consensus and rises to 4.4%, the we could see Sterling suffer.

Tomorrow will also see the release of the UK’s Average Earnings report for March. If this continues to drop, then we could see the GBP/AUD exchange rate remain subdued.

Meanwhile, the Australian Dollar (AUD) will continue to be driven by global risk sentiment. However, if US-China trade tensions worsen, then we could see the ‘Aussie’ shed some of its gains.

The GBP/AUD exchange rate could improve if the Reserve Bank of Australia’s (RBA) minutes confirms a grim outlook for the Australian economy.

David Moore

Contact David Moore