November 4, 2020 - Written by Frank Davies
STORY LINK GBP to AUD Exchange Rate Struggles on US Election Hopes and Australian Outlook
Despite the US 2020 Presidential Election being far closer than expected amid last night’s developments, the British Pound to Australian Dollar (GBP/AUD) exchange rate has been unable to mount much of a recovery. Instead, the Australian Dollar remains fairly resilient while the Pound is unappealing on political uncertainty. This is partially due to the Australian Dollar benefitting from Australian data and coronavirus hopes.
GBP/AUD has essentially reversed last week’s gains this week so far.
Last week saw GBP/AUD climb from the level of 1.8271 to 1.8448 throughout the week, and briefly touch on a high of 1.8485. However, this week’s losses have left the pair closer to last week’s levels again.
Overnight, GBP/AUD touched on a low of 1.8192. This was the lowest level for the pair in about half a month. At the time of writing on Wednesday, GBP/AUD trends closer to the level of 1.8260 - just below last week’s opening levels.
GBP Exchange Rates Hit by Market’s US 2020 Presidential Election Panic
The US 2020 Presidential Election was widely bet to be a clear win for Democratic Party challenger Joe Biden. However, as votes came in and were counted last night, it became clearer that the election would be far closer than hoped.
Many of the States predicted to go to Biden ended up going to US President Donald Trump, leaving Trump with more potential paths to re-election or the possibility of a hotly contested election result.
For markets, a close election result that could lead to contested results, recounts or court challenges is the worst possible election outcome due to the uncertainty it presents.
While the Pound is not often a hugely risk-correlated currency, today’s Pound losses were due to risk-aversion. Due to UK coronavirus and Brexit uncertainties, investors were unwilling to take risks and buy the Pound amid the US political uncertainty.
Today’s UK PMI data certainly didn’t help much. Britain’s final October services and composite PMI results fell short of projections, with services coming in at just 51.4.
Analysts at Markit noted that the chances of Britain seeing a so-called ‘double-dip recession’ was rising, as Britain is set to head back into lockdown this week. According to Tim Moore, IHS Markit’s Economics Director:
‘October data indicates that the UK service sector was close to stalling even before the announcement of lockdown 2 in England, with tighter restrictions on hospitality, travel and leisure leading to a slump in demand for consumer-facing businesses.’
AUD Exchange Rates Jittery but Avoiding Losses amid Political Hopes
The Australian Dollar is a currency that often sees correlation with market risk and trade sentiment. Despite this though, the Pound has seen more bearishness from US political uncertainty today than the ‘Aussie’.
While the Australian Dollar was slightly knocked overnight by a tighter than expected US Presidential Election, markets are still cautiously optimistic today.
As votes continue to be counted, hopes that it will still lead to a clear result in the coming days are keeping the ‘Aussie’ from falling too far.
The Australian Dollar is also benefitting from Australia’s more optimistic coronavirus outlook.
Australia saw its first day with zero new coronavirus cases in five months over the weekend. It was seen as a big positive for the nation which has been gradually coming out of its second lockdown.
According to Greg Hunt, Australia’s Health Minister:
‘Thank you to all of our amazing health & public health workers & above all else the Australian people,’
GBP/AUD Exchange Rate Forecast: US 2020 Presidential Election Remains the Focus
Unlike other US Elections in modern history, the 2020 Presidential Election has seen a heavily delayed final result due to the impact of the coronavirus pandemic.
A huge number of votes were sent by mail, leading to delays in counting. As a result, the final tallies for some key states may not become known for days or perhaps even weeks.
Markets are watching the state of Pennsylvania particularly closely.
As votes continue to be counted, the closeness of the result and whether or not US President Donald Trump will attempt to contest it will drive global risk-sentiment and market movement.
The Pound may calm and recover slightly if markets become more optimistic. On the other hand though, this would also boost AUD.
With Britain headed back into lockdown, the Pound may not have much room to advance in the coming sessions either.
Sterling could also be kept lower by a dovish Bank of England (BoE)
. The BoE will hold its November policy decision tomorrow, and the bank is predicted to become more dovish as it reacts to the latest UK coronavirus restrictions.
US politics and BoE news will be the focus for the Pound to Australian Dollar exchange rate in the coming sessions, but tomorrow’s Australian trade data could be influential as well.
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TAGS: Pound Australian Dollar Forecasts