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Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Rises on Boris Johnson’s ‘Compromise’ Brexit Plan

October 3, 2019 - Written by John Cameron

Pound Australian Dollar (GBP/AUD) Exchange Rate Rises as Johnson Tries to ‘Bridge the Chasm’ With the EU

The Pound Sterling Australian Dollar (GBP/AUD) exchange rate edged up and the pairing is currently trading at around AU$1.8378.

The Pound edged up as Prime Minister Boris Johnson stated he has made a ‘genuine attempt to bridge the chasm’ to get a new Brexit deal with the EU.

The ‘compromise’ would see Northern Ireland stay in the European single market but leave the customs union.

While Irish Prime Minister Leo Varadkar said the new plans were welcome, they ‘fall short in a number of aspects’.

Meanwhile, the European Commission said Johnson’s plan needed ‘further work’ as it contained ‘problematic points’.

The UK government hopes to start a period of intense negotiations with the EU to reach a final agreement by the EU summit on 17 October.

Pound (GBP) Edges Up despite UK Recession Fears

Sterling edged up against the ‘Aussie’ despite data revealing that the dominant service sector slipped into contraction in September.

The sector saw the largest decline in employment in over nine years while business expectations weakened to the lowest level since July 2016.

The data also revealed that all three sectors, manufacturing, construction and services, registered lower output in September.

This was the first month of broad-based decline since April 2009, increasing the chances the UK has entered a recession in the third quarter.

Commenting on Markit’s PMI data, Chief Business Economist, Chris Williamson noted:

‘A trio of grim reports on the economy means that the vast service sector has now joined manufacturing and construction in decline. Only the collapse in confidence immediately following the 2016 referendum has seen a steeper overall deterioration in the economy during the past decade, but September’s decline is all the more ominous, being the result of an insidious weakening of demand over the past year rather than a sudden shock.
‘The increasingly dire readings push the surveys further into territory that would normally be associated with policy stimulus from the Bank of England, suggesting a greater likelihood that the next move in interest rates will be a cut.’

Disappointing Aussie Trade Balance Weighs on Australian Dollar (AUD)

The Australian Dollar slipped on Thursday afternoon as the country’s monthly trade surplus edged lower due to lower iron ore prices.

Figures released by the Australian Bureau of Statistics showed the trade surplus fell to $5.9 billion in August.

Exports of goods and services fell by -3% while imports of goods slumped by $137 million.

Meanwhile, the risk-sensitive ‘Aussie’ was left under pressure as US employment data added to signs that the US-China trade dispute is likely causing the world’s largest economy to cool.

Added to this, in what US President Donald Trump hailed as a ‘nice victory’, the US announced that as punishment for illegal aircraft subsidies, it would hit Europe with trade tariffs.

European-made Airbus is to be hit by 10% tariffs while cheese, French wine, and Scotch and Irish whiskies are to be hit with 25% tariffs.

Pound Australian Dollar Outlook: Will a Jump in New Home Sales Buoy AUD?

Looking ahead to Friday, the Australian Dollar (AUD) could edge up against Sterling (GBP) following the release of HIA’s new home sales data.

If sales jump in August, rebounding from July’s slump, the ‘Aussie’ is likely to receive an upswing of support.

Meanwhile, better than expected retail sales could further buoy AUD.

If August’s retail sales rebound from the previous month’s decline, the Pound Australian Dollar (GBP/AUD) exchange rate is likely to slide.

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