Demand for the Pound remained volatile as the formal process of Brexit got underway, with a sense of uncertainty set to prevail.
Even so, the Pound Australian Dollar exchange rate began to recover some of its recent losses during Wednesday’s European session.
Sterling already has a large degree of Brexit uncertainty priced in, limiting its downside potential in the near term.
Markets were encouraged to adopt a more optimistic outlook after suggestions that the UK government was backing down from its threat to walk away without any deal.
A better-than-expected net consumer credit figure for February also bolstered the appeal of the Pound, suggesting that domestic sentiment remains resilient.
Although Bank of England (BoE) policymaker Ian McCafferty took a relatively dovish view on monetary policy in comments on Tuesday this failed to weigh on GBP exchange rates for long.
With interest rates likely to remain at their current level for some time yet, though, the Pound will struggle to find any support here.
Even if Brexit jitters remain limited in the near term the GBP AUD exchange rate could return to a softer footing if domestic data proves disappointing.
March’s GfK consumer confidence survey is forecast to point towards an easing in sentiment, which could precede a general deterioration in economic conditions.
If rising inflation and weaker wage growth lead to a more substantial faltering in household spending this could undermine confidence in the health of the UK economy.
While a softer line of rhetoric from politicians on both sides of the Channel could boost the Pound its bias is expected to remain to the downside for some time to come.
Increasing doubts over the abilities of the US administration put pressure on the Australian Dollar, meanwhile, as promised infrastructure spending appeared less likely to materialise.
This prompted a slump in commodity prices and a general deterioration in risk appetite, leaving the ‘Aussie’ on the back foot.
An absence of fresh Australian data left the antipodean currency at the mercy of wider market developments.
However, a weakening in the HIA new home sales data could encourage the antipodean currency to trend higher across the board, given recent policymaker comments on the overheating of the housing market.
With the Reserve Bank of Australia (RBA) expected to maintain a neutral bias at its April policy meeting the GBP AUD exchange rate could be prompted to trend lower next week.
As Sean Callow, research analyst at Westpac, noted:
‘Markets price only a tiny risk of a cut by September 2017 and then toy with the idea of a rate rise by year-end (10-15% chance).’
If policymakers continue to express concern over the temperature of the domestic housing market, though, the Australian Dollar could falter further.
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