Pound to Australian Dollar Exchange Sinks on Fears that UK Could Face Mass Unemployment

GBP/AUD Exchange Rate Falls as UK Chancellor Warned of Impending Unemployment Crisis

The Pound to Australian Dollar exchange rate fell today, with the pairing currently fluctuating around AU$1.79.

Sterling fell today following reports highlighting the risk that the UK could face mass unemployment if furlough is not extended beyond April.

British Chancellor Rishi Sunak has been warned by leaders from the Trades Union Congress (TUC) and other important business leaders about the impending crisis.

Frances O’Grady, the TUC general secretary, warned:

‘It would be a dereliction of duty of any government [not to extend furlough]. Nobody should think it is responsible or acceptable for any government to consign people to the dole queues. The government must understand we need to work our way back to growth, and for that we need people in jobs. Otherwise we are going to end up with real, deep economic and social problems.’

As a result, Pound investors are concerned that the UK economy could face an unprecedented crisis, both politically and socially, in the months ahead.

In UK economic data, today saw the publication of January’s Services PMI, which beat forecasts but remained deep in contraction territory.

Tim Moore, Economics Director at IHS Markit, commented on the report:

‘Service providers experienced a steep downturn in business activity due to the third national lockdown in January, although the speed of decline remains much slower than last spring. Tight restrictions on travel, leisure and hospitality resulted in severely reduced trading among customer-facing businesses.’

Nevertheless, Moore also highlighted that business optimism had risen to its highest since May 2014. The UK’s Covid-19 vaccine rollout offers a possibility for the economy  to steadily recover in the months ahead.

Australian Dollar Rises as Australian Building Permits Rise and the RBA is More Optimistic

The Australian Dollar rose following today’s release of December’s Australian Building Permits figure, which rose from 2.6% to 10.9%.

As a result, AUD traders are more hopeful that Australia’s construction sector could make a marked improvement going further into 2021.

Today also saw the Reserve Bank of Australia’s (RBA) Governor strike an upbeat tone, saying that the economic shock from the Covid-19 pandemic was not as bad as first thought.

Mr Lowe said:

‘The development of vaccines in record time is clearly good news. It has reduced one of the big uncertainties and could provide the foundation for a vigorous and sustainable recovery in the global economy.’

The risk sensitive ‘Aussie’ has also risen on broader risk sentiment, which is continuing to improve on hopes in the global Covid-19 vaccination effort.

Could Sterling Sink on Dovish Policy from the Bank of England?

Australian Dollar traders will be looking ahead to tomorrow’s release of December’s Trade Balance data.

Any improvement in Australia’s exports would further boost the AUD/GBP exchange rate.

However, if this evidences a slump in trade for Australia, we could see the ‘Aussie’ begin to shed some of its gains.

Tomorrow will also see another speech from the RBA’s Governor Philip Lowe. If he maintains his bullish mood, then the Australian Dollar would head higher.

In UK economic news, tomorrow wills see the Bank of England (BoE) announce its interest rate decision, which is expected to hold at 0.1%. If the BoE’s monetary policy report expresses concern for the British economy going forward, then the GBP/AUD exchange rate would suffer.

David Moore

Contact David Moore