July 8, 2020 - Written by Tim Boyer
STORY LINK GBP to AUD Exchange Rate Slips from Fortnight Best as Risk-Sentiment Remains Volatile
Despite a lack of particularly strong support for the Pound, the British Pound to Australian Dollar (GBP/AUD) exchange rate is climbing this week. Investors have been finding the Pound a little more appealing due to Brexit hopes, helping the British currency to sustain gains. The Australian Dollar, on the other hand, is seeing mixed demand due to a surge in coronavirus infections in Australia, while signs of risk-on sentiment persist despite this.
GBP/AUD saw highly mixed and fairly narrow movement last week. After opening the week at the level of 1.7975, GBP/AUD briefly slipped lower to a 2020 worst of 1.7875 before rebounding slightly. GBP/AUD closed last week just around its opening levels.
This week’s movement has been similar, but GBP/AUD’s recovery attempt has been stronger. A dip to near yearly lows at the beginning of the week has been followed by a visit to its best levels in a fortnight, the level of 1.8102.
At the time of writing, GBP/AUD has slipped slightly from those highs and trends in the region of 1.8061.
GBP Exchange Rates Gaining Ahead of UK Summer Statement amid Brexit Speculation
Investors have been buying the Pound back from its lowest levels since last week.
A combination profit-taking at the end of Q2 2020, as well as fresh Brexit speculation, helped the Pound to claw back some gains from its worst levels all year.
Towards the end of last week, speculation rose that UK-EU Brexit negotiations could see some kind of breakthrough over the next month. These hopes have been keeping the Pound buoyed this week as well.
However, Sterling’s potential for gains has been limited. Hopes for a Brexit breakthrough are not enough to lead to a sustained recovery in the Pound, as there are some analysts warning that talks may not heat up until later in the year.
According to Yohay Elam, Analyst at FXStreet:
‘Chief EU Negotiator Michel Barnier visited London and met his British counterpart David Frost for dinner – which included fish. The fate of fisheries is one of the points of contention in talks. While their silence following the encounter may signal progress, headlines coming out from their bosses are less encouraging. PM Johnson told German Chancellor Merkel that the UK is ready to end the transition period without a trade deal. Talks may become more serious only after the summer.’
Amid Brexit uncertainty and anticipation for upcoming UK Budget news, the Pound struggled to hold its best levels today.
AUD Exchange Rates Benefitting from Lingering Risk-Sentiment despite Victoria Virus Surge
There has been a surge in reported coronavirus cases in Australia over the past week.
While markets had been previously impressed with Australia’s handling of the pandemic, the nation’s recovery seems in for a major stumbling block.
Australia’s State of Victoria has been hit with a shock surge in infections. It is one of the incidents causing global concern of a ‘second wave’ of infections to rise.
Victoria is Australia’s second-largest city. It is seeing a hard lockdown to prevent further spread of the virus, and markets are anxious about how this will hurt the chances of Australia seeing a solid economic recovery.
According to Phil Odanaghoe, Analyst at Deutsche Bank:
‘Our initial sense is that the re-opening reversal stemming from the lockdown will see the economy surrender some – but not all – of the better than expected trajectory’
GBP/AUD Exchange Rate Forecast: UK Summer Statemenrt and Coronavirus Developments in Focus
The Pound is slipping back from highs, but it could see a jump in demand if today’s UK Budget news impresses investors.
UK Chancellor Rishi Sunak will be holding a supplementary Summer Statement presentation at around midday. If he unveils any impressive stimulus for Britain’s economy, the Pound could see a stronger rise in demand.
FXStreet’s Yohay Elam said:
‘Chancellor Rishi Sunak's is set to lay out measures to kickstart the economy, and some of the ideas have already been released to the press. Previous ideas regarding green investment have been unfavorably compared with parallel schemes in major European countries. Sunak will speak at around 11:30 GMT and investors will pass judgment. For the Pound – more spending is better.’
With Australia seeing a new strict lockdown, coronavirus developments will of course remain influential for the Pound to Australian Dollar exchange rate as well.
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TAGS: Pound Australian Dollar Forecasts