Pound Australian Dollar (GBP/AUD) Falls Despite UK PM Truss’ Resignation
(Updated 16:35 20/10/22)
The Pound Australian Dollar (GBP/AUD) exchange rate fell further today despite stronger performance for the Pound (GBP). The resignation of UK Prime Minister Liz Truss earlier today prompted a rally in the equity markets and risk-on trading, limiting gains for the currency pair. More significant losses for GBP/AUD were likely limited by hopes from the markets that a new PM could bring some economic stability.
Neil Mehta, portfolio manager at asset manager BlueBay, said:
‘A political reset would continue to erase the risk-premium embedded in UK assets after the ill-fated Truss/Kwarteng mini-budget. Particularly if front-runner Rishi Sunak becomes PM and implements more orthodox conservative economic policy. With Jeremy Hunt as chancellor, we could see a more meaningful shift towards a more centrist government.’
The exchange rate was also underpinned by comments from Bank of England (BoE) Deputy Governor Ben Broadbent. The deputy governor stated that interest rates were unlikely to go as high as markets expected. His comments prompted a rise in UK government prices, calming fears of any further routs in the bond market.
At time of writing the GBP/AUD exchange rate is at around $1.7820, which is down roughly 0.4% from this morning’s opening figures.
Original article continues below:
Pound Australian Dollar (GBP/AUD) Exchange Rate Slips as UK Bond Prices Fall
The Pound Australian Dollar (GBP/AUD) exchange rate is falling today amid an uncertain outlook for UK Prime Minister Liz Truss. A drop in UK government bond prices may also be weighing on the currency pair.
GBP/AUD could be underpinned today by signs of a cooling labour market in Australia, however.
At time of writing the GBP/AUD exchange rate was at around $1.7829, which is down roughly 0.3% from this morning’s opening figures.
Pound (GBP) Slips as Turmoil for Truss Continues
The Pound (GBP) is edging lower today. Uncertainty surrounding the stability of Liz Truss’ premiership is likely weighing on Sterling.
The turmoil surrounding PM Truss grew overnight after the surprise resignation of Home Secretary Suella Braverman. Additionally, a contentious vote on fracking in the House of Commons saw chaotic scenes in the voting lobby amid confusion over the true nature of the vote.
The scenes have seen additional Conservative MPs call for Truss’ resignation today. Members of the party’s 1922 committee are set to meet later today to discuss the PM’s future.
The instability has also seen government bond prices fall and pushed up yields. Bill Blain, strategist at Shard Capital, said that the markets had been watching recent events ‘in a kind of stunned, open-mouthed horror’.
Blain went on to say:
‘Because it looks like competent politics are broken, that’s creating the volatility that we’re seeing in markets. And I’m afraid that’s going to continue. Whatever it is that Liz Truss tries to do to introduce stability, it just creates more chaos.’
Australian Dollar (AUD) Firms Despite Signs of Cooling Labour Market
The Australian Dollar (AUD) is ticking higher today after the release of employment data earlier this morning. A retreat in risk appetite may keep gains for the ‘Aussie’ capped, however.
Today’s employment figures showed the country’s jobless rate remaining at 3.5% for the second consecutive month. Additionally, net employment rose by only 900 in September. The figures point to a slight loosening in Australia’s previously tight labour market.
The data lends support to the Reserve Bank of Australia’s (RBA) intentions to slow its pace of interest rate hikes in the coming months. This has likely in turn led to fewer bets on AUD, prompting its losses today.
The gains for the Australian Dollar may be coming off the back of an uptick in iron ore prices today. News that China may be set to ease its quarantine period for visitors may also be helping to push AUD higher.
GBP/AUD Exchange Rate Forecast: Will UK PM Truss Survive the Week?
Looking ahead to the rest of the week for the Pound, retail sales figures for September on Friday could prompt further losses in the currency. Sales volumes are forecast to decline for the second consecutive month after a drastic downturn in August.
The political turmoil within the UK may also weigh on GBP in the coming days. Furthers calls for PM Truss’ resignation may continue to cause market jitters amid the prospect of another leadership contest.
With no significant data left for the Australian Dollar this week, the currency’s movements are likely to be dictated by any changes in risk appetite. Further Covid-19 measures in China may keep pressure on the ‘Aussie’, however.