Brexit ‘Confusion’ and UK’s Covid-19 Lockdown Leaves the Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Lower
UPDATE: The Pound Sterling Australian Dollar (GBP/AUD) exchange rate fell by around -0.6% on Wednesday afternoon. This left the pairing trading at around AU$1.9017.
The Pound slumped against the Australian Dollar as Britain did not show any signs of easing the country’s coronavirus lockdown.
This comes despite other countries laying out plans to re-open their economies which boosted the risk-sensitive ‘Aussie’.
With the UK set to have one of the worst coronavirus death tolls in Europe, Boris Johnson’s government has insisted it is too early to talk about easing the lockdown.
The UK government has also said that it will not review the current social distancing guidelines until 7 May.
Rabobank senior FX strategist Jane Foley commented that the lack of information from the government about lifting the lockdown was a downside risk for the Pound.
She also added:
‘I think that there’s some concerns that […] we have been fairly rudderless, and that compared with some other countries there seems to be a delay in the UK in coming forward with a plan with respect to shutdowns.
‘Coupled with the confusion about Brexit and the fact there is no indication from the government that they want to extend the transition phase there is more uncertainty potentially on the way.’
Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Slips as Aussie Inflation Hits Five-Year High
The Pound Sterling Australian Dollar (GBP/AUD) exchange rate slipped by around -0.3% on Wednesday. This left the pairing trading at around AU$1.9058.
The risk-sensitive Australian Dollar edged higher this morning as risk appetite rose ahead of the US Federal Reserve monetary policy meeting.
Traders moved away from the safe-haven US Dollar and towards riskier assets, and according to JFD Group’s senior market analyst, Charalambos Pissouros:
‘The weakening of the Dollar and the strengthening of the commodity-linked currencies suggest that risk appetite may have remained supported for another day.
‘The optimism due to several economies starting to loosen restrictive measures may have also helped.’
Meanwhile, data showed that Australia’s first quarter inflation jumped to its highest level in over five years.
However, the long-desired pickup in inflation may be short-lived due to the coronavirus lockdown and weak energy prices.
Commenting on this, NAB economist, Kaixin Owyong noted:
‘Our early forecast for Q2 inflation is for a 1.9% decline in the headline CPI, which would see annual deflation of 0.4%.’
Headline Aussie consumer prices rose by 0.3% in Q1 2020 compared to the previous quarter, pushing annual inflation to 2.2% from 1.8%. This was the highest inflation reading since Q3 2014.
This also buoyed the ‘Aussie’ as this was the first time since early 2018 inflation reached the Reserve Bank of Australia’s (RBA) 2-3% inflation target.
Sterling (GBP) Slides as UK-EU Talks at ‘Impasse’
Meanwhile, the Pound edged lower against the Australian Dollar today after reports about UK-EU trade negotiations left the currency under pressure.
On Tuesday reports revealed trade talks between Britain and the European Union were at a standstill.
According to officials and diplomats in Brussels, talks about post-Brexit trade agreements are at an impasse due to disagreements over the coronavirus pandemic.
According to one diplomat from the bloc:
‘We are at an impasse. There are plenty of minor technical details where we could find solutions. But on the fundamental goals each side is trying to achieve – the differences are enormous. Things cannot move without a political push. And it’s missing.’
Pound Australian Dollar Outlook: Will the Fed Boost Risk Appetite?
Looking ahead, the Australian Dollar (AUD) is likely to edge higher against the Pound (GBP) fllowing the US Federal Reserve’s monetary policy meeting.
If the Fed announce further stimulus it will boost risk appetite and buoy the risk-sensitive ‘Aussie’.
However, on Thursday morning the Australian Dollar could edge lower following the release of Australian ANZ business confidence data.
If business confidence slumps further than expected in April due to the coronavirus crisis, the Pound Australian Dollar (GBP/AUD) exchange rate will edge higher.
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