Pound Australian Dollar Exchange Rate News: GBP/AUD Steadies as Boris Johnson’s Cabinet Cull Stokes Election Speculation

July 25, 2019 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Steadies as Boris Johnson’s Cabinet Cull Stokes Election Speculation

Pound (GBP) Exchange Rates Flat on General Election Speculation

The Pound (GBP) is currently traded in a narrow rage against the Australian Dollar (AUD) and the majority of its other peers on Thursday as markets digested Boris Johnson’s first day in office as UK Prime Minister.

Sterling accelerated throughout much of Wednesday’s trading session as Theresa May handed over power to Johnson, but began to stall later in the evening in response to Johnson’s purge of his predecessors cabinet.

Just over half of May’s former cabinet were sacked by Johnson as he went about surrounding himself with prominent Brexit supporting ministers.

Analysts suggest this is likely to increase the risk of a no-deal Brexit and could open the door to a general election sooner rather than later.

Lee Hardman, currency analyst at MUFG Bank suggests:

‘Brexit uncertainty and “No Deal” fears are both set to remain elevated remaining heavy weights on the pound. New PM Boris Johnson has clearly reiterated that the first aim of his government will be to leave the EU at the end of October with or without a deal.

‘The [Cabinet] appointments will both heighten concerns over a “No Deal” Brexit and a snap general election. With a wafer thin working majority, the government appears very unstable. The continued political uncertainty should help to keep the pound weak and encourage a further pick up in volatility in the coming months.’

Australian Dollar (AUD) Exchange Rates Undermined by Dovish Lowe Comments

Meanwhile, the Australian Dollar (AUD) was left on the back foot on Thursday in the wake of some dovish comments from Reserve Bank of Australia (RBA) Governor Philip Lowe.

At a scheduled speech in Sydney Lowe said that the RBA stands ready to ease monetary policy further if necessary, and that the bank’s looser monetary policy is here to stay.

Lowe said:

‘If demand growth is not sufficient, the board is prepared to provide additional support by easing monetary policy further.

‘Whether or not further monetary easing is needed, it is reasonable to expect an extended period of low interest rates’

The RBA has lowered rates twice so far this year, with a drop of 25 basis points in both June and July, with interest rates currently sitting at a record low of 1%.

With inflation continuing to miss targets, the pressure will remain on the RBA to continue easing its monetary policy.

Whilst markets have priced in a third cut this year, there is still the question of timing, with Lowe offering no hints today on when its next cut could be expected.

GBP/AUD Exchange Rate Forecast: Will a Fed Rate Cut Boost the ‘Aussie’ Next Week?

Looking ahead, with both the UK and Australia having exhausted their data this week, analysts may now turn their attention to next week’s session.

This may see the Pound Australian Dollar (GBP/AUD) exchange rate begin to retreat following the Federal Reserve’s latest policy meeting, where a widely expected rate cut from the US central bank could relieve some of the pressure on Australia’s economy and push the ‘Aussie’ higher.

Meanwhile, ignoring any potential political developments in the UK, the focus for GBP investors will be on the Bank of England’s latest policy meeting, with the pound potentially dropping if the BoE drops any additional hints it could ease monetary policy this year.

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