Markets opened this week to fresh coronavirus panic, but the British Pound to Australian Dollar (GBP/AUD) exchange rate is currently tumbling. The latest stimulus action from govermments and central banks is keeping markets a little more optimistic, which is helping risk-correlated currencies like the Australian Dollar to avoid deeper losses. As for the Pound, it remains highly volatile as Britain’s coronavirus situation worsens.
Despite the Pound’s own broad weakness last week, GBP/AUD ultimately advanced slightly amid the Australian Dollar’s even deeper weakness. GBP/AUD edged higher from 1.9844 to 2.0115 throughout the week.
However, GBP/AUD has struggled to hold above the key level of 2.00 and was once again sliding below those levels today. At the time of writing, GBP/AUD is trending lower in the region of 1.9909 again.
A slightly better mood in markets is boosting AUD slightly today. However, GBP/AUD remains within ten cents of last week’s high of 2.07 – which was the best level for the pair since the 2016 Brexit vote.
GBP Exchange Rates Struggle as Britain’s Coronavirus Crisis Deepens
The Pound has been increasingly hit by the coronavirus pandemic in recent weeks, seeing such significant losses that some analysts believe it is behaving more like a risk-correlated currency.
Britain’s coronavirus situation has seen a sudden turn over the past week. The number of confirmed cases is rising considerably and many businesses are closing while the UK government ramps up attempts to protect the economy.
Last week’s aggressive stimulus measures from the Bank of England (BoE), as well as the UK Treasury’s stimulus package to defend businesses and workers, briefly led to a rebound in Pound demand.
However, overall the rising number of UK cases and its increasingly concerning potential impact on Britain’s economy are keeping the Pound broadly unappealing.
The evidence of the coronavirus damaging Britain’s economic activity is already coming, and more major businesses are putting a stop to activity today.
According to Joe Hayes, Economist at IHS Markit:
‘People seem rightfully concerned whether or not they will be able to pay their bills in the coming months,’
Diane Wehrle, Insights Director at Springboard, said:
‘The decline in footfall week on week was on par with the drop normally only ever seen in the week post-Christmas.
The annual change represented an unprecedented decline in retail footfall that was three times greater than the worst result we have ever previously recorded.’
AUD Exchange Rates Boosted by Stimulus Hopes
The risk and trade-correlated Australian Dollar has been one of the currencies hit hardest by the global coronavirus pandemic. This is why even the broadly weak Pound was able to sustain gains against the ‘Aussie’ last week.
The Australian Dollar is highly unappealing amid worsening market fears that Australia’s economy will fall into a deep recession for much of this year.
However, as the ‘Aussie’ is strongly correlated to market sentiment over the coronavirus situation, this also helps it benefit when markets are in a slightly better mood.
Markets were slightly cheered this morning by a significant stimulus measure, suddenly announced by the Federal Reserve. The Fed launched a massive plan to buy government-backed debt, in a move that led to brief optimism in markets.
This, as well as rising optimism over Australia’s own stimulus plans, helped the Australian Dollar to climb slightly against the Pound today.
GBP/AUD Exchange Rate Forecast: PMIs Ahead but Focus Remains on Pandemic
Investors are hesitant to buy the Pound for now and are buying the ‘Aussie’ in a small boost in market sentiment.
However, these movements are unlikely to last. The US stock market’s benefit from the Federal Reserve’s latest stimulus was short-lived, indicating it was not enough to help markets to turn a corner.
What’s more, ‘Aussie’ investors remain highly anxious about both global and Australian economic outlooks. Australia is still expected to see a deep recession this year.
GBP/AUD investors are likely to overlook tomorrow’s PMI projections, unless they show economies weathering the impact of the pandemic better than expected.
Instead, investors are closely watching for further stimulus plans. If the UK Treasury ramps up support for self-employed workers the Pound could hold its ground better.
On the other hand, the ‘Aussie’ could strengthen if investors become more optimistic about Australia’s stimulus attempts. Overall though, the Pound to Australian Dollar exchange rate is in for more volatility with the coronavirus pandemic ongoing.
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