Gloomy UK Outlook Hits Pound to Australian Dollar (GBP/AUD) Exchange Rate Lower

Pound to Australian Dollar Exchange Rate Hit by UK Data, Coronavirus, Brexit 

Even though market risk-sentiment has taken a hit this week, the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is falling again. Various factors are keeping pressure on the Pound (GBP) ahead of tomorrow’s Bank of England (BoE) news. 

Due to market risk-aversion, GBP/AUD advanced slightly last week. Since opening this week at the interbank level of 1.82, GBP/AUD has been fluctuating. 

After attempts to advance further earlier in the week, GBP/AUD is falling again today. At the time of writing, the GBP/AUD interbank rate is trending around the 1.8200. 

Market risk-sentiment has been highly mixed this week. Overall though, the Pound’s weakness has kept it low. Meanwhile the Australian Dollar (AUD) benefits from moments of risk-on movement. 

Pound (GBP) Exchange Rates Dampened as UK Inflation Offers Little Relief 

Today’s UK inflation data was just the latest in a series of gloomy factors for Britain’s outlook. The data did not surprise investors however.

May saw UK inflation fell to its lowest levels since June 2016 – the aftermath of the Brexit vote. Analysts had expected weak inflation, but it offered further proof that the coronavirus pandemic had had a big impact on Britain’s economy. 

It follows yesterday’s UK job market news. Analysts weren’t optimistic about the job market either. Many believe that UK jobs will still become much weaker before recovering. 

All this is merely adding to Britain’s coronavirus and Brexit worries. According to Marhsall Gittler, Head of Investment Research at BDSwiss Group, Brexit uncertainty is keeping a lid on the Pound’s overall appeal: 

‘The Pound’s weakness may reflect continued scepticism about the likely outcome of the Brexit negotiations,’ 

Australian Dollar (AUD) Exchange Rates Resilient despite Global Uncertainty 

Investors continue to find risk-correlated assets appealing. This is despite increasing warnings that a ‘second wave’ of coronavirus infections may be on the way.

The Australian Dollar (AUD) has been resilient. This is due to Australia’s handling of the coronavirus, as well as hopes for more fiscal stimulus from major economies.

Still, today’s GBP/AUD losses are also due to the Pound’s weakness. The pair may have fallen even further if risk-sentiment was stronger. 

Global market risk-sentiment is being limited by comments from the International Monetary Fund (IMF). The IMF’s chief economist said that the growth contractions caused by the coronavirus pandemic are likely to be even worse than estimated. 

According to Kazushige Kaida, Head of FX Sales at State Street, ‘second wave’ fears are increasingly taking the focus for global markets: 

‘Market players are looking to, with caution, how critical the impact from any second wave of infections on the economy will be,’ 

Pound to Australian Dollar (GBP/AUD) Exchange Rate Looking to Key Thursday News 

Various factors continue to weigh on the Pound (GBP), but the Australian Dollar’s (AUD) appeal is also limited by signs that risk-sentiment could unravel. 

The direction of GBP/AUD trade could potentially shift tomorrow though. Thursday will see key UK and Australian news. 

During the Asian session, Australia’s May job market report will be published. It will give investors a better idea of how Australia’s economy is handling the brunt of the coronavirus pandemic. 

Then, during the European session, the Bank of England (BoE) will hold its June policy decision. 

The anticipated decision is expected to see the BoE ramp up its quantitative easing (QE) scheme, but the tone the bank takes will be vital. 

If the bank shows any signs that negative interest rates are on the cards, the Pound is likely to see a fresh bout of weakness. 

Overall, unless the BoE is more optimistic than expected tomorrow, the Pound to Australian Dollar (GBP/AUD) exchange rate will remain under pressure. 

Josh Jeffery

Contact Josh Jeffery