The Pound to Australian Dollar (GBP/AUD) exchange rate trended lower through last week’s session as a risk-on tone prevailed.
What’s Been Happening: Australian Dollar Benefits from Risk-On Tone
The Australian Dollar drifted higher through last week’s session as the appeal of the risk-sensitive ‘Aussie’ was bolstered by the upbeat market mood.
This appeared largely driven by the positive outlook for 2021, amidst hopes for a more generous US stimulus package and a strong recovery in global growth.
Meanwhile, the Pound was offered an initial boost last week as markets cheered the news that the UK and EU had managed to seal a post-Brexit trade deal on Christmas Eve.
But this euphoria quickly faded, as analysts began to express their concern that the new trade accord did not cover the UK’s vital services sector.
Further dampening GBP demand were also fears over the surge in coronavirus cases throughout the UK and the tightening of coronavirus restrictions even further.
Three Things to Watch Out for This Week
1. UK Coronavirus Developments
The main catalyst of movement in the Pound for the first week of 2021 looks to be the potential for the UK government to impose even tougher coronavirus restrictions, as surging cases sees Boris Johnson under pressure to impose another national lockdown.
2. UK PMI Releases
Also influencing Sterling sentiment this week will be December’s finalised UK PMI releases. Will stronger-than-expected activity in the UK service sector at the end of 2020 offer some support to the Pound?
3. Australian Trade Balance
For AUD investors the focus will be on Australia’s latest trade figures, in which a potential narrowing of the national trade surplus in November may weigh on the ‘Aussie’.
Looking ahead, the prospect of more coronavirus restrictions in the UK is likely to loom large over the GBP/AUD exchange rate, with the Pound likely to face fresh selling pressure if a new national lockdown is announced.