GBP/AUD Exchange Rate Slips on Bailey’s Warning on EU Financial Access
The Pound to Australian Dollar (GBP/AUD) exchange rate is ticking lower this morning, following comments from Bank of England (BoE) governor Andrew Bailey.
At the time of writing the GBP/AUD exchange rate is trading at around AU$1.7860, down roughly 0.3% from this morning’s opening rate.
Pound (GBP) Undermined by Bailey Warning
The Pound (GBP) finds itself on the back foot against the Australian Dollar (AUD) this morning after the BoE’s Andrew Bailey warned that the EU could cut the UK out of its financial markets.
The UK and EU are currently in discussions in hopes of reaching an agreement on financial rules sometime in March, but Bailey suggests that the EU has so far been unreasonable in its demands.
Speaking in his annual Mansion House speech to the City, Bailey said:
‘I’m afraid a world in which the EU dictates and determines which rules and standards we have in the UK isn’t going to work. Is the EU going to cut the UK off from itself? There are signs of an intention to do so at the moment but I think that would be a mistake.’
Given how much the UK’s economic growth comes from the financial service sector, it’s unsurprising to see Bailey’s warning rob the Pound of some of its recent bullish momentum this morning.
Australian Dollar (AUD) Bolstered Followed Biden-Xi Call
Meanwhile, the Australian Dollar (AUD) is firming this morning, after details of the first phone call between US President Joe Biden and his Chinese counterpart, Xi Jinping were released.
The call was viewed as a goodwill gesture by Biden, coming just before the Lunar New Year and helped to boost market sentiment.
While the call saw the two sides talks about cooperation, Biden also raised the issues of human rights abuses in Xinjiang and reiterated US support for Taiwan.
Biden said:
‘I spoke today with President Xi to offer good wishes to the Chinese people for lunar new year. I also shared concerns about Beijing’s economic practices, human rights abuses, and coercion of Taiwan. I told him I will work with China when it benefits the American people.’
In addition, the continued weakness of the US Dollar (USD) also added to the ‘Aussie’s appeal in overnight trade.
GBP/AUD Exchange Rate Forecast: UK GDP Figures in the Spotlight
Looking ahead to tomorrow’s session, it seems pretty safe to assume the UK’s latest GDP figures will act as the main catalyst of movement in the Pound to Australian Dollar exchange rate.
The economic consensus is that the UK economy will have expanded by a modest 0.5% in the last quarter of 2020, down from 16% in Q3, but enough to prevent the UK from suffering a double-dip recession on the assumption of a Q1 contraction in 2021.
However, in light of the UK’s second national lockdown and subsequent tightening of restrictions in the lead up to Christmas, there remains a high level of uncertainty, with a weaker-than-expected growth reading likely to undermine the Pound’s recent strength.
Meanwhile, in the absence of any notable data, movement in the Australian Dollar is likely to continue to be dictated by market sentiment, with the ‘Aussie’ likely to extend its gains so long as the mood remains upbeat.