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GBP to AUD Exchange Rate Near 3-Week-Worst Despite Fresh US-China Trade War Tensions

October 9, 2019 - Written by James Fuller

Last week’s rise in Brexit hopes and Reserve Bank of Australia (RBA) interest rate cut bets don’t seem to have helped the British Pound to Australian Dollar (GBP/AUD) exchange rate to sustain much of a recovery, and as geopolitical uncertainties worsen again this week the pair is tumbling again. Sterling is being hit hard by yet another round of Brexit uncertainties, while the Australian Dollar has been edging higher despite fresh US-China trade jitters.

GBP/AUD wasn’t able to sustain last week’s strong gains despite briefly touching on a high of 1.8414, and the pair ultimately only gained from 1.8170 to 1.8218 throughout the week.

This week’s movement has been volatile yet again. After a brief rise in demand on Monday, GBP/AUD slumped yesterday. Despite a brief recovery attempt earlier this morning, GBP/AUD is once again trending close to a 3 Week Low of 1.8109 at the time of writing.

GBP Exchange Rate Recovery Fails as EU Doubts New Major Concession on Brexit

Yesterday saw a surge in concerns that UK-EU Brexit negotiations were on the brink of collapse, after a discussion between UK Prime Minister Boris Johnson and German Chancellor Angela Merkel reportedly went poorly.

UK government sources indicated that they now believed the chances of a new UK-EU deal being agreed were highly unlikely, and the Pound plummeted.

Sterling did enjoy a small rebound this morning. Fresh Brexit deal speculation flared up following reports that the EU was preparing to offer a big concession in talks.

However, these hopes were short lived as they were quickly followed up by indication that Northern Ireland’s DUP Party was not happy with the alleged concessions.

On top of this, EU sources reportedly told Reuters that there was no concession on offer, denying the earlier reports.

Still, despite fears of negotiation collapse continuing to rise, EU officials have continued to express hope that a deal can be made.

EU Chief Negotiator Michel Barnier said today:

‘The EU will remain calm, vigilant, respectful and constructive. The technical talks continue,

I think the deal is possible. Very difficult but possible.’

As a result, the Pound remained weak today but further gains were limited due to lingering hopes that negotiations could recover, as well as weakness in rival currencies.

AUD Exchange Rates Gaining despite US-China Trade Jitters

The trade-correlated Australian Dollar was able to climb against the Brexit battered Pound today, despite a lack of major support for the currency.

Investors continued to find the Australian Dollar appealing due to a mix of expectation for a more dovish Federal Reserve, as well as hopes that US-China trade relations could improve.

Today’s US-China trade developments haven’t exactly been optimistic for the most part, as tensions appear to have worsened again ahead of high level talks in the coming week.

While China has indicated that it could buy extra goods in return for a partial trade deal, analysts predict it is unlikely that the US will play along.

It is currently seen as unlikely that there will be any kind of trade breakthrough in the upcoming high level talks.

Investors continue to buy the trade-correlated Australian Dollar though, due to speculation of a more dovish Federal Reserve.

GBP/AUD Exchange Rate Forecast: Federal Reserve Meeting Minutes in Focus

As Wednesday draws on, the Pound and Australian Dollar have seen steadier movement as markets anticipate the next big developments.

Investors are hesitant to move on Sterling amid Brexit deal uncertainty, and the British currency is likely to move on speculation regarding UK-EU relations in the coming days.

While there is Australian data due tomorrow though, the biggest news for Australian Dollar investors over the next day will be this evening’s Federal Reserve meeting minutes.

The minutes will give the details on the bank’s most recent policy decision, at which it was more hawkish than expected on monetary policy.

However, there is speculation that as US data continues to show signs of slowdown, other Fed officials could show more dovish tones on the US outlook.

If the Fed minutes show that dovishness is rising, the perceived policy divergence between the Fed and the Reserve Bank of Australia (RBA) could narrow. This would leave the Australian Dollar more appealing.

Thursday will see the publication of Australian home loans data and a slew of UK stats including growth and production figures, which could also cause some Pound to Australian Dollar exchange rate movement tomorrow.
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