Pound Australian Dollar (GBP/AUD) Exchange Rate Slips Lower despite Brexit Optimism

Pound Australian Dollar (GBP/AUD) Exchange Rate Stumbles despite ‘Change of Tone’ in Brexit Talks

(Updated 16:50, 12/11/21) The Pound Australian Dollar (GBP/AUD) exchange rate turned south this afternoon, despite a more upbeat atmosphere around renewed Northern Ireland protocol negotiations.

The UK Brexit Minister Lord Frost and his EU counterpart Maroš Šefčovič met today in an attempt to resolve the Brexit dispute over the Northern Ireland protocol. Šefčovič struck a positive note, saying he welcomed the UK’s ‘change in tone’ and promised a ‘laser beam’ focus on resolving the issue.

Despite this, GBP/AUD has slipped. The movement seems to come from renewed strength in the Australian Dollar (AUD), which firmed across the board, although there is no clear catalyst.

Original article continues below:

Pound Australian Dollar (GBP/AUD) Exchange Rate Firms on Brexit Talks and Mixed Market Mood 

The Pound Australian Dollar (GBP/AUD) exchange rate has firmed this morning, with Sterling seemingly supported by cautious optimism as EU-UK negotiations resume. 

Meanwhile, the ‘Aussie’ is somewhat subdued as risk sentiment remains mixed after China Evergrande narrowly avoided defaulting last night. 

Pound (GBP) Climbs as Brexit Talks Resume 

The Pound (GBP) has firmed across the board this morning, as GBP bulls attempt to break a three-day losing streak. 

The upside seems to come from some cautious optimism as the UK and the EU renew Brexit negotiations over the Northern Ireland protocol. 

Progress between the two sides seemed to have stalled last week, with markets worried that the UK government would trigger Article 16 and that this may precipitate a trade war. The EU warned of proportionate rebalancing measures should London suspend parts of the protocol, while Dublin prepared a contingency plan in case the post-Brexit trade deal collapses. 

However, the two sides are holding crunch talks today to try to resolve the issue. The UK Brexit Minister Lord Frost will try to calm tensions by saying that activating Article 16 is a last resort, and that the UK is committed to finding a solution with the EU. 

In addition, there are reports that the EU could propose further removals of checks on goods crossing the Irish Sea in an attempt to resolve the dispute. 

However, the Pound’s upside may be limited. While the restarting of talks is certainly a positive step, hopes that Brussels and London will reach an agreement are low. 

Australian Dollar (AUD) Slips as Overnight Session Ends 

Meanwhile, the Australian Dollar (AUD) has dipped since the overnight forex session ended amid reduced trading activity around the ‘Aussie’. 

Since dropping off sharply as Asian trading came to a close, the Australian Dollar seems to have moved mostly sideways as a mixed market mood leaves the risk-sensitive currency without a clear direction. 

Last night, the embattled Chinese property giant Evergrande once again averted a default by finding the cash to pay creditors at the last minute. Today, shares in the company hit a six-week high. But as Evergrande Group stumbles from deadline to deadline, burdened with $300bn in debt, any optimism is likely limited. 

GBP/AUD Exchange Rate Forecast: Will Brexit Optimism Last? 

With limited data due out today, Brexit headlines and risk appetite may be the main drivers of movement in GBP/AUD. 

If cautious optimism is underpinning the Pound today, it will be interesting to see how long it lasts. Many commentators, including Laura Kuenssberg of the BBC and senior EU officials, expect both sides to remain at loggerheads, leading to the triggering of Article 16. 

As for the ‘Aussie’, if risk sentiment shifts sharply one way or the other then the Australian Dollar is likely to follow suit. 

Samuel Birnie

Contact Samuel Birnie