PM’s No-Deal Brexit Ultimatum Triggers -0.8% GBP/AUD Exchange Rate Drop

September 18, 2018 – Written by Toni Johnson

Monday opened with the Pound trading at a level of AU$ 1.8295 against the Australian Dollar: the GBP/AUD exchange rate closed daily trading around AU$ 1.8394.

Beyond the opening and closing rates, the Pound’s worst daily exchange rate was AU$ 1.8246.

Pound Sterling to Australian Dollar Exchange Rate News: GBP/AUD Drops by -0.8% as Brexit Warnings Stack Up

Pound Sterling (GBP) has fallen by -0.8% against the Australian Dollar (AUD) today, as concerns about the Brexit process have spilled over and dragged the UK currency down.

The latest UK economic news has concerned the ongoing Brexit process, coming from Prime Minister Theresa May and officials at the International Monetary Fund (IMF).

In the former case, the PM has presented MPs with an ultimatum – approve the ‘Chequers plan’ on Brexit, or accept a no-deal Brexit.

The PM staking everything on approval of the controversial Chequers proposal has been seen as a significant gamble by analysts, not least because it makes a no-deal Brexit outcome a real possibility.

Upping the stakes even further, IMF analysts have warned that a no-deal Brexit would be ‘a significantly worse outcome’ to a mutually-agreed Brexit arrangement.

IMF Managing Director Christine Lagarde has outlined the institution’s expectations for any kind of Brexit deal, saying:

‘Any deal will not be as good as the smooth process under which goods, services, people and capital move around between the EU and the UK without impediments and obstacles.’

Echoing Ms Lagarde’s sentiment, UK Chancellor Philip Hammond has added that:

‘The IMF are clear today that no deal would be extremely costly for the UK as it would also for the EU, and that despite the contingency actions we’re taking, leaving without a deal would put at risk the substantial progress the British people have made over the past 10 years in repairing our economy.’

In essence, warnings about the potential damage of a no-deal Brexit, as well as signs that a no-deal departure could be more likely have combined to drain GBP trader confidence today.

Australian Dollar to Pound (AUD/GBP) Exchange Rate Up 0.8% as RBA’s Minutes Show Cautious Optimism

The Australian Dollar (AUD) has risen sharply against the Pound (GBP) and all of its other regular currency peers today, due to Reserve Bank of Australia (RBA) data and international trade news.

In the former case, the latest minutes from the RBA have shown that policymakers are still looking to raise interest rates instead of cutting them when they are next adjusted.

It is still unclear when the next RBA interest rate hike could be, but this consistent aim for a future rate hike has still reassured AUD traders.

In other news, Australian Dollar demand has also risen because of an escalation in the US-China trade war that has weakened the US Dollar.

Although the tit-for-tit tariffs that the US and China have imposed on each other could harm Australia in the long-term, for now they have devalued the US Dollar and made the Australian Dollar more appealing.

Pound Sterling to Australian Dollar Exchange Rate Forecast: Will GBP/AUD Losses Come on UK Inflation Rate Slowdown?

The week’s first solid UK domestic data is out on Wednesday morning, although August’s UK inflation rate figures could end up causing greater GBP/AUD exchange rate losses.

August’s inflation rate readings are expected to show a year-on-year slowdown from 2.5% to 2.4%, which could reduce the odds of a near-term Bank of England (BoE) interest rate hike.

The UK central bank isn’t expected to adjust interest rates until 2019 at the earliest, but a slower pace of inflation will make a rate hike next year less likely.

Although the month-on-month reading is tipped to rise from 0% to 0.5%, this may largely be ignored by GBP traders in favour of the more high-impact annual reading.

On the other side of the pairing, the Australian Dollar could be moved by Thursday morning’s quarterly Reserve Bank of Australia (RBA) bulletin.

This provides a snapshot of Australian economic growth over previous months, in addition to giving an idea of how the economy could perform in the future.

If the bulletin is broadly positive about the state of Australia’s economy and suggests that there could be future economic growth, then the Australian Dollar could advance against the Pound.

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TAGS: Pound Australian Dollar Forecasts