July 9, 2018 - Written by James Fuller
STORY LINK Daily Pound News: GBP/AUD Exchange Rate Drops -0.7% as Boris Johnson Resigns
Last week, the Pound to Australian Dollar (GBP/AUD) exchange rate opened trading in the region of 1.7847 and closed up higher around 1.7883.
This appreciation for GBP was mainly down to UK PMI data releases, which printed above forecasts in all fields.
The reported services sector growth seen in June was an especially supportive data release and raised hopes that there could be a Bank of England (BoE) interest rate hike in August.
Late-week support came from BoE Governor Mark Carney, who stated that the UK’s poor economic performance in early 2018 was mainly weather-related, rather than a symptom of ongoing weakness.
GBP/AUD Exchange Rate Crashes after Davis and Johnson Resign
The Pound (GBP) has taken a turn for the worse today, falling sharply against the Australian Dollar (AUD) and other currency peers after Brexit Secretary David Davis and Foreign Secretary Boris Johnson both resigned.
This double departure follows what was thought to be a successful cabinet meeting on Friday, where the Prime Minister presented a new plan for the post-Brexit customs arrangement.
The idea was to ensure that there is no hard Irish border after the UK leaves the EU, but some pro-Brexit cabinet members saw the plan as giving too many concessions to the EU.
Accordingly, Mr Davis resigned late on Sunday night and after much speculation, Mr Johnson has also left office.
This leaves Prime Minister Theresa May in an unstable position, at risk of either more departures from the cabinet or from one of her ministers mounting a leadership challenge against her.
Articulating the difficulties, BBC Assistant Political Editor Norman Smith said:
‘The real fear now from Number 10's perspective is not whether there will be a stand up fight over Chequers plan, but whether there will be a concerted move to unseat Theresa May with Boris Johnson in the lead.’
At the time of the 2016 Conservative leadership election, Mr Johnson ultimately didn’t participate in the contest; in the wake of his departure today, a genuine bid for the leadership cannot be ruled out.
Because of the widespread uncertainty this news has caused, the Pound has quickly fallen in value.
A replacement for Mr Johnson is expected to be announced shortly, but this is unlikely to reassure GBP traders who believe the government is undergoing severe turbulence at present.
Australian Dollar to Pound (AUD/GBP) Exchange Rate Rises as US Dollar Declines
There hasn’t been much Australian economic data to refer to today, which has left US news as the main cause of Australian Dollar to Pound (AUD/GBP) exchange rate gains.
The AUD/GBP exchange rate has risen because a devalued US Dollar has raised risk sentiment among currency traders, boosting the Australian Dollar’s value.
This is primarily because of poor US jobs market data and concerns about a future trade war dragging on US Dollar demand.
Last week saw a surprise increase in the US unemployment rate, as well as the imposition of sizable trade tariffs by the US and China against each other; both of these factors have been beneficial to the Australian Dollar.
GBP/AUD Exchange Rate Forecast: Can Pound to Australian Dollar Exchange Rate Recover on UK Output Stats?
Future Brexit-related developments could devalue the Pound this week, but more concretely the UK currency might be able to recover when Tuesday’s production data is released.
This is predicted to show higher levels of manufacturing, industrial and construction output during May, which might be enough to push the Pound to Australian Dollar (GBP/AUD) exchange rate back up.
That said, early Australian economic data threatens to keep the GBP/AUD exchange rate in a loss-making position, if it prints as forecast.
This will be the NAB business confidence reading for June, which is tipped to show a rise in optimism levels from 6 points to 8.
While this wouldn’t be a massive increase in optimism levels, such a result could still raise confidence among Australian Dollar traders when comparing to the recently-battered Pound.
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