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GBP to AUD Exchange Rate Steadies amid Hopes for Brexit Deal

September 30, 2020 - Written by Toni Johnson

Concerns about the US Presidential Debate was not enough help the British Pound to Australian Dollar (GBP/AUD) exchange rate to recover its weekly losses, but the pair’s losses did slow today as market hopes for a Brexit deal and the latest Bank of England (BoE) speculation helped the Pound to steady. Investors continue to find the Australian Dollar relatively appealing as a risk-correlated currency in recent sessions.

Last week saw the Australian Dollar plummeting from its best levels as investors bought safe havens. This left GBP/AUD surging from 1.7717 to 1.8124 throughout the week.

At the beginning of this week, GBP/AUD briefly climbed even higher. GBP/AUD touched on a high of 1.8280 on Monday, the pair’s best level since its early-September plummet.

After touching that high though, GBP/AUD begun to tumble again. While GBP/AUD is avoiding major losses and is holding above this week’s lowest levels, the pair is still trending lower in the region of 1.8030 at the time of writing.

GBP Exchange Rates Volatile as Markets Await Brexit Developments

Earlier in the week, investors continued to buy the Pound on hopes that this week could finally see a breakthrough in UK-EU Brexit negotiations.

The Pound has been unable to hold these highs though.

A lack of solid developments regarding Brexit has meant that speculation alone is not enough to keep the Pound higher. Today’s slightly better than expected UK growth report was also not enough to boost the Pound outlook.

In fact, continued uncertainties about Britain’s coronavirus and Brexit outlooks are weighing on the Pound as well. This is leaving the British currency’s outlook overall volatile.

Yesterday saw UK Parliament pass the UK government’s bill to undermine the Brexit withdrawal agreement. This caused some slight Pound weakness.

However according to Neil Jones, Head of European Hedge Fund Sales at Mizuho, markets still expect a deal will be reached overall:

‘A deal conquers all in regards to the Brexit negotiations,

The Internal Market Bill passing through the House of Commons was business as expected. So far, it has gone according to market expectations. What has put the bill on the side temporarily is the expectations of a deal between the EU and the UK.’

On top of Brexit hopes preventing the Pound from further losses, the currency also found a little support in comments from Bank of England (BoE) Chief Economist Andy Haldane today.

Haldane said markets were too pessimistic about the coronavirus pandemic and Brexit.

He also said that negative interest rates were not yet justified for Britain’s economy. He said that certain conditions were necessary before the bank would implement them:

‘All three of these conditions would need to be satisfied before negative rates became a reality. At present, none of those conditions is in my view satisfied’

AUD Exchange Rates Benefitting from Lingering Risk-Sentiment

Following last week’s big selloff of currencies correlated with risk and trade sentiment, markets have calmed somewhat this week.

The Australian Dollar and other relatively risky currencies were sold as the coronavirus pandemic looked set for a second wave across the globe. Brexit and US political fears also dampened risk appetite.

This week though, the Australian Dollar has regained some ground. The ‘Aussie’ is fairly resilient as a risk-correlated currency this year, due to hopes that Australia is handling the coronavirus pandemic well compared to some other major economies.

Some lingering risk-appeal is helping the ‘Aussie’ as a result. According to Analysts at ANZ Bank:

‘The shape of the post-lockdown growth path reignited concern with global data momentum fading and fresh restrictions in Europe and a diminishing chance of near-term US fiscal stimulus hurting confidence. Anxiety about the US election helped drive a more defensive posture in FX markets.’

On top of this, speculation that the Reserve Bank of Australia (RBA) may not take a sudden dovish shift in October after all has helped the ‘Aussie’ to avoid deeper losses.

GBP/AUD Exchange Rate Forecast: Brexit Breakthrough Still Possible

There is still potential for huge Pound movements before the end of the week. The final scheduled round of UK-EU Brexit negotiations are still ongoing, and are expected to wrap up on Friday.

Analysts predict that this is the most likely week for progress or a breakthrough to be made. Even if there is a delay before a deal is agreed, signs of major progress would be seen as making a deal more likely, and the Pound could surge in this instance.

On the other hand though, if there are no optimistic developments the Pound could plummet as investors become more concerned about the possibility of a no-deal Brexit at the end of the year.

While Brexit developments have the biggest potential to cause movement in GBP/AUD for the remainder of the week, there are some notable ecostats due for publication which could cause movement as well.

Tomorrow will see the publication of Australian and UK manufacturing PMI data for September. Surprising data could influence currency movement.

Continued coronavirus and US political developments will influence risk-sentiment, which will continue to be closely watched by Pound to Australian Dollar exchange rate investors as well.
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