The GBP/AUD exchange rate traded in a wide range again last week in response to growing concerns over the trajectory of the global economy.
What’s Been Happening: Australian Dollar Undermined by Global Growth Outlook
The Australian Dollar initially rallied last week, buoyed by market optimism and the weakness of the US Dollar (USD).
However, these gains were quickly reversed as the market mood began to sour, after the minutes from the Federal Reserve highlighted the US central bank’s concerns over the pandemic and the ‘elevated uncertainty’ over global growth prospects.
At the same time, Brexit uncertainty rocked the Pound last week. Sterling initially climbed on optimism from Downing street, before plummeting as the latest round of talks ended in deadlock and the EU’s Chief Negotiator, Michel Barnier, suggested that a deal ‘seems unlikely’ at this stage.
UK data was also mixed last week, with some strong headline inflation and PMI figures undermined by concerns over unemployment and the sustainability of the UK’s economic recovery.
Three Things to Watch Out for This Week
1. Coronavirus Developments
Likely acting as a key catalyst in currency markets this week, will be the renewed concerns over the coronavirus pandemic, as flare ups around the world stoke uncertainty and likely dampen the appeal of risk-sensitive currencies like the Australian Dollar.
2. Brexit Headlines
GBP investors are likely to keep their eye open for any more Brexit developments this week, as the Pound remains vulnerable to further losses if pessimism over a deal continues to grow.
3. BoE Bailey Speech
Also influencing GBP exchange rates this week will be a speech by Bank of England (BoE) Governor Andrew Bailey towards the end of the session, with investors on the lookout for any mention of negative interest rates.
Looking ahead, it’s likely we will see the GBP/AUD exchange rate experience additional volatility this week as renewed coronavirus concerns keep investors on their toes.