GBP/AUD Exchange Rate Climbs as Brexit Deal May Be Imminent
Expectations that the UK and EU could reach a Brexit deal within hours are boosting the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate today. Both currencies are benefitting from the news, but the Pound (GBP) is easily the biggest beneficiary.
After opening this week at the interbank level of 1.77, GBP/AUD briefly dipped lower on coronavirus jitters. Since then, GBP/AUD has been rebounding and currently trends well above the week’s opening levels.
At the time of writing on Thursday morning, GBP/AUD is trending near weekly highs of 1.78. This is the pair’s best level since early-December.
Continued developments over Brexit, as well as the coronavirus pandemic, are likely to be the primary causes of Pound and Australian Dollar (AUD) movement over the coming week.
Pound (GBP) Exchange Rates Advance amid Expectation for Imminent Brexit Deal
Since yesterday, UK and EU officials have been signalling that a deal could be imminent. This morning, global markets are preparing for the deal to be confirmed, and it’s causing big gains in the Pound.
The Pound has become something of a proxy for Brexit sentiment since 2016. As a result, it has become the most appealing currency amid speculation that a Brexit deal could be mere hours away.
Pound rally continues as a UK-EU Brexit trade deal is imminent. pic.twitter.com/O52TbuXssN
— Holger Zschaepitz (@Schuldensuehner) December 24, 2020
Still, the Pound is not at its best levels against the ‘Aussie’ despite this Brexit optimism. This is partially because uncertainty over how Brexit will unfold from here will keep at least some level of uncertainty on the Pound.
Australian Dollar (AUD) Exchange Rates Also Cheered by Brexit
After being spooked by surges in coronavirus cases earlier in the week, the Australian Dollar is also benefitting from Brexit optimism today.
The Australian Dollar is a currency often correlated to market risk and trade-sentiment.
As a result, with markets more optimistic that a Brexit deal is imminent, investors are more willing to take risks. This is boosting the Australian Dollar as well.
According to Tim Riddell, Economist at Westpac, the relief of a deal would be risk-positive:
‘The past month of ‘will they, won’t they’ swings and almost constant shifting of supposed deadlines has both exasperated and exhausted market participants’
Pound to Australian Dollar (GBP/AUD) Exchange Rate Outlook Keeping Brexit in Focus for Now
The Pound to Australian Dollar exchange rate could see further gains in the coming weeks, as markets become more optimistic that a major obstacle could be removed from the UK outlook.
Still, the UK-EU Brexit deal is set to be a fairly hard one, not as soft as the deal markets initially hoped for.
What’s more, analysts expect that some uncertainties will remain in the Pound outlook for quite some time. According to David Owen, Chief European Economist at Jefferies:
‘this is not the end of Brexit, far from it. 2021 will be the start of managed divergence and for many companies, particularly for services, a fundamental change in the way they do their business.’
For now at least, Brexit will remain the focus for Pound and Australian Dollar investors. This is partially due to a lack of notable data due for publication amid the festive holiday period.
Coronavirus developments may be influential. As the Australian Dollar is more risk-correlated than Sterling, the Pound to Australian Dollar exchange rate is likely to advance if coronavirus situations worsen as well.