GBP/AUD Exchange Rate Drops as Theresa May Rejects Post-Brexit Customs Union

May 17, 2018 - Written by Ben Hughes

STORY LINK GBP/AUD Exchange Rate Drops as Theresa May Rejects Post-Brexit Customs Union

Yesterday saw the Pound open trading against the Australian Sollar in the region of 1.8078 and close down lower around 1.8016.

This slide in value came after Bank of England (BoE) Deputy Governor Ben Broadbent gave a negative assessment of the UK economy.

Mr Broadbent was particularly critical of UK productivity levels, which have remained below those of EU rivals despite more hours worked.

GBP/AUD Exchange Rate Drops -0.3% after Theresa May Rejects Brexit Customs Union

The Pound (GBP) has made moderate losses against the Australian Dollar (AUD) today, following a government confirmation that the UK will not be part of an EU customs union after Brexit.

It was initially hoped that the UK would remain part of such a union after Brexit, following remarks from Prime Minister Theresa May at Prime Minister’s Questions on Wednesday.

Responding to Labour leader Jeremy Corbyn, Mrs May outlined the government’s post-Brexit trading strategy by saying:

‘We want to ensure that we can continue to trade in as frictionless a way as possible.

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‘The suggestion that trade is entirely frictionless at the moment is not actually correct. We have set three very simple objectives for a future customs union.

‘I will say to the House that achieving those objectives, which I have just set out, will not be easy—it will be difficult.

‘It is absolutely right that we aim to achieve those three objectives. We will be publishing a White Paper in a few weeks showing how much progress we are making.’

While this may have implied an intent to remain in the EU customs union, Mrs May later clarified her remarks and stated:

‘We are not [climbing down]. The United Kingdom will be leaving the customs union, we are leaving the European Union.’

This latter statement has once again dashed hopes that the UK could remain in an EU customs union of any kind after parting ways with the EU.

This comes in the context of there only being five months left before Brexit negotiations must be concluded, at which point EU leaders will review UK plans up to March 2019.

The latest declaration from the PM has raised concerns that the UK negotiating team may be forced to rush through with compromises, potentially leaving the UK with a ‘bad’ Brexit deal.

Rising AU Unemployment Rate Fails to Prevent AUD/GBP Exchange Rate Advance

The Australian Dollar to Pound (AUD/GBP) exchange rate has risen by 0.3% today, although given losses in other pairings this is likely down to Sterling weakness rather than high confidence in the AUD.

Against expectations, the Australian unemployment rate has risen from 5.5% to 5.6% in April; this was mainly caused by more people seeking employment which raised the participation rate.

Despite the unemployment rate rising, there were also more people in employment.

Overall employment rose by 22.6k persons while the number of people in full-time employment increased by 32.7k.

Full-time employment is considered to be more valuable to the Australian economy than part-time work, as longer hours worked means more taxable income.

GBP/AUD Exchange Rate Forecast: Will Pound to Australian Dollar Losses Come from UK Inflation Acceleration?

There is a danger of Pound to Australian Dollar (GBP/AUD) exchange rate losses next week, when high-impact UK inflation rate data is released on Wednesday.

This readings covering price movement in April are forecast to show higher inflation on both the month and the year.

Core inflation, a more accurate measure that strips out volatile factors like food and fuel prices, is also tipped to rise for the year-on-year reading.

Rising inflation rate levels may not excite Pound traders, as the Bank of England (BoE) has previously resisted any pressure from above-target inflation.

There is instead a greater risk of prices rising above the pace of wage growth, which will return UK consumers to facing a wage squeeze.

There are a number of potential negative UK economic impacts from this data, so a GBP/AUD exchange rate decline on is possible on news of higher inflation.

The next Australian economic data will also be out on Tuesday, although this may end up boosting the Australian Dollar.

A reading for construction activity in Q1 is expected to show a rise of 9%, which will be an especially positive result given that a -19.4% contraction was reported in Q4 2017.

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