Pound Sterling to Australian Dollar Exchange Rate Tumbles on Brexit Worries

July 17, 2018 – Written by Ben Hughes

On Monday, the Pound opened trading against the Australian Dollar at a level of 1.7405.

The GBP/AUD exchange rate initially rose to a level of 1.7465, but closed down daily trading at a lower level of 1.7388.

Pound Sterling to Australian Dollar Exchange Rate News: GBP/AUD Declines on Brexit Warning from BoE

The Pound (GBP) has been in low demand today; having opened trading by holding close to opening levels, the UK currency has since dropped against the Australian Dollar (AUD) and other peers because of Brexit-related anxiety.

The latest GBP devaluation is down to Brexit news, namely Bank of England (BoE) Governor Mark Carney’s predictions about what a ‘no Brexit’ deal could mean for the UK economy.

Mr Carney’s warnings were mainly focused on the UK’s financial services sector, which includes banking in the City of London. In the event of ‘no deal’, Mr Carney forecast:

‘It would be a material event. I wouldn’t prejudge in which direction, though.

‘Speaking very narrowly about the financial services side, in the event of a no-deal scenario… there would be big economic consequences. We might have a lot of idle bankers as there is not a lot of demand for their services.

‘We are concerned that the EU has not yet indicated its solution. The private sector cannot solve these issues.

‘This is fundamentally about taking responsibility to protect the financial system… its cold comfort, but it will be worse in Europe than it is here.’

Australian Dollar to Pound (AUD/GBP) Exchange Rate Rises despite Cautious RBA Outlook

The Australian Dollar (AUD) has made a moderate advance against the Pound (GBP) today, mainly because of Sterling weakening this afternoon.

On the Australian side, the latest domestic data has been the relatively unsupportive release of Reserve Bank of Australia (RBA) minutes from their latest monetary policy meeting.

RBA officials have given no indication that they are planning to raise interest rates anytime soon, which initially disappointed traders and led to Australian Dollar to Pound (AUD/GBP) exchange rate losses.

Commenting on the news, Paul Dales of Capital Economics said:

‘The minutes of the Reserve Bank of Australia’s July meeting confirm that the bank is a long way from raising interest rates and that it is worrying more about a global trade war, the slowdown in China and the high level of domestic debt at home.

‘If anything, July’s minutes support other evidence that the RBA is becoming a bit more concerned about the outlook.’

Pound Sterling to Australian Dollar Exchange Rate Forecast: Can GBP/AUD Recover on UK Inflation Rate Data?

The Pound (GBP) might be able to regain lost ground in trading against the Australian Dollar (AUD) on Wednesday, when high-impact UK inflation rate data comes out.

June’s reading is predicted to show price growth for the year-on-year figure, although a month-on-month slowdown is also forecast.

The annual figure is the more important of the two and might cause the Pound to rally against the Australian Dollar, given the implications for a potential Bank of England (BoE) interest rate hike.

Higher inflation rates put pressure on the UK central bank to consider raising interest rates, as by doing this they can increase savings and ideally lower price growth.

Problematically, however, today’s wage growth slowdown means that UK households would face tougher conditions if inflation and interest rates were to rise.

The BoE has previously held off on raising interest rates because of concerns about wage growth printing below inflation; if GBP traders assume that more BoE inaction is likely then the Pound could drop against the Australian Dollar.

The week’s next Australian economic data is further away, consisting of Thursday morning’s employment data.

The national unemployment rate isn’t expected to change from 5.4%, but 17k persons are forecast to have found employment during June.

Lower unemployment could eventually lead to Australian wage growth and the long-awaited Reserve Bank of Australia (RBA) interest rate hike, so a surprise jobless rate drop might be enough to boost the Australian Dollar on Thursday afternoon.

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TAGS: Pound Australian Dollar Forecasts