Pound Australian Dollar (GBP/AUD) Exchange Rate Plunges to Six-Week Low on Mounting Risk of a No-Deal Brexit

GBP/AUD Exchange Rate Extends Losses on Brexit Anxiety

The Pound to Australian Dollar (GBP/AUD) exchange rate is on the retreat again this morning, slumping to a new six-week low amidst rising Brexit uncertainty.

At the time of writing the GBP/AUD exchange rate is trading at around AU$1.7897, down roughly 0.5% from this morning’s opening rate.

Pound (GBP) Plunges as UKs Plans to Break International Law Stokes Brexit Tensions

The Pound (GBP) remains in the doldrums this morning as markets fear the odds of a no-deal Brexit have risen sharply over the past few days.

GBP investors have been particularly unsettled by Boris Johnson’s plans to override parts of the EU withdrawal deal, in what Northern Ireland Secretary Brandon Lewis, admitted would be in breach of international law.

This has understandably gone down very poorly in the EU and will no-doubt make it even more difficult for the two sides to reach an agreement on a post-Brexit trade deal.

Jim Reid, Head of Global Fundamental Credit Strategy at Deutsche Bank also warns that Johnson could even face a revolt from his own MPs over the issue:

‘Notably, even a number of Conservative MPs expressed disquiet with the plans to go against an international treaty, with former Prime Minister Theresa May asking in the House of Commons how the government would reassure future international partners that the UK would abide by its legal obligations.’

While talks continue this week, it’s safe to say that GBP investors aren’t holding out much hope for any kind of breakthrough.

Australian Dollar (AUD) Tempered by Vaccine Setback

Meanwhile, the Australian Dollar’s (AUD) gains this morning have been capped in the face of weaker risk appetite.

The risk-off tone comes on the back of news that final clinical trials for a promising coronavirus vaccine have been halted after a participant appeared to have an adverse reaction.

The vaccine, in join development between pharmaceutical giant AstraZeneca and Oxford University, is viewed as one of the most promising vaccine candidates, with expectations it could be the first to be widely available.

While AstraZeneca has described the halt as a ‘routine’ part of trials whenever an ‘unexplained illness’ is encountered, news of a possible delay was understandably disappointing to markets, stoking the risk-off tone which has limited the appeal of the ‘Aussie’ this morning.

GBP/AUD Forecast: More Brexit Driven Volatility Ahead?

Looking ahead, the Pound to Australian Dollar (GBP/AUD) exchange rate is likely to be infused with additional volatility as Brexit remains firmly in focus.

Expect to see the Sterling sell-off accelerate if this week’s talks fail to offer any meaningful progress towards a deal.

However there is the potential for the Pound to recoup some ground at the end of the week if the UK’s latest monthly GDP release shows an impressive expansion of growth in July.

Meanwhile, the Australian Dollar could face some headwinds if US-China tensions continue to flare, limiting investor demand for risk-sensitive assets.

Matthew Andrews

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