Pound Sterling (GBP) to Australian Dollar (AUD) Exchange Rate Soft Despite Improved UK Consumer Confidence

December 22, 2016 - Written by Tim Boyer

STORY LINK Pound Sterling (GBP) to Australian Dollar (AUD) Exchange Rate Soft Despite Improved UK Consumer Confidence

As low trading volumes and a general atmosphere of risk aversion weighed on the Australian Dollar the Pound nevertheless struggled to find traction against its rival, leaving the GBP AUD exchange rate on a narrow downtrend.

Pound Sterling Trended Lower Despite Improved Consumer Confidence

Confidence in Pound Sterling (GBP) has been generally limited thanks to resurgent worries over the government’s Brexit strategy this week, with investors still jittery over the potential loss of access to the single market.

A higher-than-expected public sector net borrowing figure also weighed heavily on the appeal of the Pound, with new government debt rising 12.2 billion Pounds in November to suggest a widening of the UK’s trade deficit.

The GBP AUD exchange rate was subsequently unable to capitalise on an unexpected uptick in the GfK consumer confidence survey for December.

While the measure suggested that sentiment had improved ahead of the festive season signs point towards this being only a temporary improvement, fuelled by consumers bringing forward purchases in expectation of inflation rising further in the New Year.

Risk Aversion Weighed on Australian Dollar Demand

Following the weaker Westpac leading index the Australian Dollar (AUD) has struggled to find traction against its rivals, with risk appetite generally limited in the approach to Christmas.

The strength of the US Dollar (USD) has hampered the antipodean currency as markets price in the higher odds of the Federal Reserve raising interest rates multiple times in the course of 2017.

As this could increase the pressure on the Reserve Bank of Australia (RBA) to return to an easing bias in the near future investors have been inclined to sell out of the ‘Aussie’, offering some support to the Pound Sterling Australian Dollar (GBP AUD) exchange rate.

Hopes of Soft Brexit Could Support GBP AUD Exchange Rate Uptrend

Looking ahead the Pound seems unlikely to find much cause for confidence, at least until there is a greater sense of clarity regarding the government’s approach to Brexit negotiations.

As Marc Chandler, research analyst at BBH, noted:

‘Parliament is understood to be less inclined to support Brexit than the population as a whole did. The larger the role of Parliament, the more likely a soft Brexit. If triggering Article 50 is delayed, or if a protracted transition state can be negotiated, it may also be supportive for Sterling.’

No surprises are expected from the finalised third quarter UK GDP data, although confirmation that the economy grew 0.5% on the quarter is unlikely to prompt any particular rally for the GBP AUD exchange rate.

With no fresh Australian data set for release ahead of the weekend the ‘Aussie’ is likely to remain under pressure from the general market disinterest in higher-yielding currencies.

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TAGS: Pound Australian Dollar Forecasts