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GBP to AUD Exchange Rate Sheds Ground as Brexit Uncertainty Returns to Focus

November 16, 2020 - Written by John Cameron

Coronavirus vaccine developments led to mixed movement in the British Pound to Australian Dollar (GBP/AUD) exchange rate last week. This week so far, vaccine developments continue to drive Australian Dollar movement, but the Pound is being influenced more by expectations that there could be major Brexit developments this week.

Last week saw GBP/AUD open the week at the level of 1.8123. After briefly dipping to a month and a half low of 1.7943 near the beginning of the week, the Pound rebounded and spent much of the week climbing higher.

GBP/AUD was unable to hold its weekly best level, but still ultimately closed the week a little higher in the region of 1.8147.

However, when markets opened this week, GBP/AUD tumbled again and has already shed all of last week’s modest gains. At the time of writing, GBP/AUD is trending near the level of 1.8069.

GBP Exchange Rates Pressured by Return to Brexit Focus

In recent weeks, the US 2020 Presidential Election and coronavirus developments have been dominating global market movement.

This meant that there was even more uncertainty for Pound investors to be concerned about, which has limited Sterling’s movement.

Some US political and coronavirus relief last week only gave the Pound a limited rebound as well, as markets remain anxious over how the Brexit process will unfold for the remainder of this month.

It is expected that UK and EU negotiators will agree to some kind of Brexit deal before the end of the month. Speculation has risen that a deal could even be presented sometime this week.

However, analysts are warning against too much Brexit optimism. Many analysts note that major divisions on issues like fishing rights still persist, which could mean that negotiations once again go up to the wire.

According to Strategists at ING:

‘While we see officials suggesting more than one week may still be needed, the technical time for ratification in the EU and UK is dangerously shrinking,

In light of this, we could see both parts rushing into a deal already this week.’

Still, markets are overall optimistic that both sides are serious about reaching a deal. Richard Perry, Senior Market Analyst at Hantec, said:

‘We’re fairly positive. There’s no real reason at the moment to think that the two sides are not moving towards an agreement,

It seems as though the market is positioning for a deal at some stage.’

AUD Exchange Rates Find Support in Coronavirus Vaccine Hopes

The Australian Dollar is a currency often correlated with market risk and trade sentiment.

This has meant that the Australian Dollar has seen stronger demand in response to developments over coronavirus vaccine efforts over the past week.

As hopes rise that there is a light at the end of the coronavirus tunnel, investors are more willing to take risks. This is boosting the Australian Dollar’s appeal.

Market sentiment only rose further today, as biotech company Moderna announced that its own coronavirus vaccine trials were going well. This further boosted hopes that the coronavirus pandemic could come to an end next year.

According to Seema Shah, Chief Strategist at Principal Global Investors:

‘Yet, today’s vaccine news should make investors more tolerant of the surging virus cases, permitting them to look through to the strong dynamics that seem to be taking shape for 2021. Easy monetary policy, fiscal stimulus, recovering economic growth – there are many reasons for investors to be optimistic as we move closer to the end of this awful year.’

GBP/AUD Exchange Rate Forecast: RBA Meeting Minutes Ahead

Tuesday’s Asian session will see the publication of the Reserve Bank of Australia’s (RBA) latest meeting minutes.

At its last policy decision, the RBA continued to show a more dovish tone as it indicated it would help to support Australia’s economy to withstand the coronavirus pandemic.

RBA Governor Philip Lowe continues to signal that the bank will be shifting focus towards unemployment rather than inflation, which has also been seen as dovish.

If the RBA minutes are more dovish than expected tomorrow, the Australian Dollar could weaken. This would make it easier for GBP/AUD to recover.

The Pound, on the other hand, is likely to focus on Brexit developments in the coming sessions.

Amid a lack of notable UK data due until later in the week, news over UK-EU relations and Brexit negotiations will be the focus for the Pound.

If there are signs of a UK-EU Brexit deal becoming closer to reality, the Pound could strengthen and the British Pound to Australian Dollar (GBP/AUD) exchange rate could push higher.
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