- UK Pound continues relief rally as ‘Brexit’ fears ease
- Australian Dollar tanks following weak inflation data
- Damp market sentiment weighs on ‘Aussie’ (AUD) demand
- GBP/AUD Exchange Rate Forecast to Hold Gains
Pound Sterling (GBP) Exchange Rates Advance despite Mostly Weak Domestic Data
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate rallied by around 1.9% towards the close of Wednesday’s European session.
In recent weeks the British Pound strengthened considerably; outperforming all sixteen of its most traded currency rivals. The appreciation was initiated by concerns that the GBP selloff, following the announcement of the June 23rd EU referendum vote, was overdone.
As the weeks progressed the UK unit extended gains. This was in response to easing ‘Brexit’ concerns as opinion polls showed a consistent lead for those campaigning to remain in the EU. Further easing ‘Brexit’ fears was notable speeches from global political heavyweights. Most significant was comments from US President Barak Obama who urged the UK to vote to remain a member of the EU.
On Wednesday the Pound is holding a strong position versus its major peers, but the marked appreciation seen in recent days was curtailed recently. This was due to a combination of damp market sentiment and disappointing domestic data.
One particularly unfavourable UK data report was the quarterly reading for first-quarter Gross Domestic Product which showed the UK economy slowed to just 0.4% growth. Those campaigning to remain in the EU have used today’s figures to highlight the impact of ‘Brexit’ uncertainty, and warn that the UK’s growth will slow further in the event that the UK votes to leave.
‘The best outcome under Brexit is still worse than remaining an EU member whilst the worst outcomes are very bad indeed,’ stated OECD Secretary General Angel Gurria. ‘Why would anyone want to give up this truly win-win proposal? The ‘Brexit tax’ would be a pure dead-weight loss, a cost incurred with no economic benefit. And this tax would not be a one-off levy. Britons would be paying it for many years.’
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is currently trending in the region of 1.9168.
Australian Dollar (AUD) Exchange Rate Dives as Risk-Off Trade Dominates
Over the past few weeks the Australian Dollar racked up some notable gains thanks to speculation of long-term delays to a Federal Reserve benchmark interest rate hike. Also fuelling ‘Aussie’ appreciation was improved market sentiment as commodity prices showed signs of significant gains.
However, Australian Dollar appreciation also flagged concerns that the Reserve Bank of Australia (RBA) will have no choice but to cut the overnight cash rate. As market sentiment dampened, following news that oil producing nations had failed to agree terms for a production freeze, demand for the ‘Aussie’ faltered.
On Wednesday the South Pacific asset dived across the board. The significant losses can be attributed to disappointing domestic data. On the year, Australia’s Consumer Price Index was forecast to hold at 1.7% in the first-quarter, but the result actually dropped to 1.3%. What’s more, the quarterly reading unexpectedly dropped into negative territory.
‘Disinflation continued across the broad services space,’ said economic researcher James McIntyre, who confirmed his rate-cut call for May following the report. ‘From an inflation expectations perspective, a negative headline outcome will be a concern for the RBA. Particularly when combined with the ‘complication’ for the economy’s transition posed by a higher Australian Dollar.’
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate dropped to a low of 1.8783 during Wednesday’s European session.
GBP/AUD Exchange Rate Forecast to Hold Gains Irrespective of FOMC Rate Decision
Such is the massive GBP/AUD exchange rate appreciation during today’s European session that it is very unlikely that the Australian Dollar will recover losses in the near-term. Even the Federal Open Market Committee (FOMC) interest rate decision is unlikely to provoke significant ‘Aussie’ gains, even if policymakers are surprisingly dovish.
However, if Federal Reserve policymakers surprise markets by being hawkish, the Australian Dollar is likely to extend losses further. This will be positive for the RBA, however, given persistent overvaluation concerns.
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate reached a high of 1.9232 during Wednesday’s European session.
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