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GBP AUD Exchange Rate Jumps as Political Jitters Abate

October 9, 2017 - Written by John Cameron

The Pound Australian Dollar (GBP AUD) exchange rate rebounded sharply this morning as fears of a potential leadership challenge against Theresa May receded over the weekend.

Pound (GBP) Rallies as Political Uncertainty Retreats

Sterling trended higher at the start of this week’s session as market confidence in Theresa May appeared to have quickly recovers after plummeting last week in the face of growing criticism and threats of a possible leadership challenge.

Investors had become increasingly unsettled in the second half of last week’s session following reports that a group of rebel Tory MPs were gaining support for their calls for the Prime Minister to step down.

Reports also suggested that May would seek to shuffle her cabinet in a move observers suggested would help to remove troublemakers such as Boris Johnson.

However May was able to quell these concerns over the weekend in an interview with the Sunday times in which hit back at her critics, saying that she is ‘pretty resilient’ and would not ‘hide from a challenge’.

The PM also appeared to alleviate fears that she would oust Johnson from his position as foreign secretary saying she had a ‘terrific cabinet’ adding that she would, ‘make sure I always have the best people in my cabinet, to make the most of the wealth of talent available in the party.’

Australian Dollar’s (AUD) Weakened by RBA Rate Cut Speculation

Meanwhile the Australian Dollar stumbled during the Asian session today as speculation mounts that the next policy move by the Reserve Bank of Australia could be an interest rate cut rather than a hike as many economists previously forecast.

The outlook reversal comes in the wake of Australia’s extremely poor Retail Sales report in August, which revealed that sales declined in the first two months of the third quarter, causing doubts that the weakened household consumption could hamper the nation’s economic growth during the quarter.

In a note released today Sally Auld, chief economist and head of Australia and New Zealand fixed income and FX strategy at JP Morgan wrote;

‘The weak August retail print casts a shadow over Q3 consumption, with volumes likely to slump relative to the first-half average.’

‘Any further sense that the consumer is wavering under the burden of slowing house price growth, rising utility prices, tighter lending conditions, and near-flat real wages would reduce the RBA’s confidence that current policy settings are consistent with a return to above-trend growth by mid-2018.’

The RBA will next meet in November, with investors likely to watching the central bank closely for any signs that August’s retail data may have altered the bank’s outlook.

GBP AUD Forecast: UK Manufacturing Activity to Have Slowed in September?

Looking to the week ahead the GBP AUD exchange rate may struggle to advance any further as the fifth round of Brexit talks get underway, with a speech by the PM later this afternoon likely to set the tone of talks as she suggested that the UK can ‘prove the doomsayers wrong’.

With this being the last round of talks before EU officials meet to decide whether sufficient progress has been made to move to the next stage of negotiations, GBP investors will be hoping that the talks will bring some kind of breakthrough, however unlikely it is to actually happen.

UK data released tomorrow could help to temporarily offset any Brexit related jitters however as analysts suggest that the UK’s latest Trade Balance figures will show that the trade deficit narrowed slightly in August.

Meanwhile the Australian Dollar may advance overnight with the release of National Australian Bank’s (NAB) latest Business Confidence data, with economists forecasting that the sentiment index will have climbed from 5 to 6 in September.

Current Interbank Exchange Rates

At the time of writing the GBP AUD exchange rate was trending around 1.6966 and the AUD GBP exchange rate was trending around 0.5893.

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