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GBP to AUD Exchange Rate Gives up Ground on Bolstered Market Sentiment

November 24, 2020 - Written by Toni Johnson

Despite continued hopes that the UK and EU are drawing closer to reaching a Brexit deal, the British Pound to Australian Dollar (GBP/AUD) exchange rate has been knocked from its highs today. The Australian Dollar continues to see resilient demand as a currency correlated to market risk and trade, and this sentiment has only been further bolstered by the latest US political developments.

Last week saw mixed movement in GBP/AUD. GBP/AUD opened the week at the level of 1.8148, and save for a brief dip the pair continued to trend just above the week’s opening levels.

At the end of the week, GBP/AUD closed the week at the level of 1.8190.

This week has been mixed so far as well, with GBP/AUD seeing a sharp jump yesterday before tumbling again this morning. Yesterday, GBP/AUD touched on a high of 1.8308. This was the best level for GBP/AUD since the beginning of the month.

However, GBP/AUD quickly gave those gains back today. At the time of writing, GBP/AUD trended below the week’s opening levels in the region of 1.8156.

GBP Exchange Rates Lack Fresh Drive but Brexit Hopes Persist

The Pound remains broadly appealing this week, as markets are optimistic that the UK and EU are getting closer to reaching a deal on Brexit following years of uncertainty.

Markets are also becoming more optimistic that even if only a narrow Brexit deal is agreed, the deal could still be edited and improved in the coming years.

However, this optimism has not changed much in recent sessions. What’s more, negotiations continue to be extended, worsening concerns that things will go right up to the wire. The Brexit transition period is currently expected to end at the end of next month.

As the Brexit outlook is largely unchanged, the Pound has not been able to hold its ground against a rebounding Australian Dollar today.

Yohay Elam, Analyst at FXStreet, says there are still notable uncertainties in Britain’s outlook:

‘UK Prime Minister Boris Johnson announced the end of the nationwide lockdown in December but the localized tier system will likely be stricter than the previous one. Moreover, it is still unclear if London, one of the world's financial capitals, will be under severe restrictions. The UK's case curve is falling, yet mortalities remain elevated.

Brexit negotiations remain around ‘95% done’ but the lack of a breakthrough on the most contentious issues is becoming worrisome as the clock ticks down to year-end when the transition period expires. Headlines range from hints of an imminent accord to a collapse in talks, adding to the confusion.’

AUD Exchange Rates Strengthen as US Political Developments Boost Market Sentiment

The Australian Dollar is a risky trade-correlated currency. It is often more appealing at times of global market uncertainty.

As a result, demand for the ‘Aussie’ has risen in response to the latest global political developments.

Overnight, US President Donald Trump’s administration signalled it would cooperate with the incoming Biden administration professionally and smoothly.

This was the strongest sign yet that the Presidential transition would go ahead, rather than President Trump refusing to leave office.

Trump has indicated he will still refuse to concede the US 2020 Presidential Election, citing baseless claims of voter fraud.

The news of transition cooperation doused fears of political uncertainty and civil unrest. According to Stephen Innes from Axi:

‘Meanwhile, several Republicans are breaking ranks with President Trump and acknowledging Biden as the election winner. Uncertainty about the election outcome in the context of lawsuits alleging voter fraud in some key states wasn’t materially holding back risk sentiment.

Still, the GSA’s announcement is vol-suppressing at the margin. And that is having a positive effect across markets as the power vacuum in Washington looks to be sucking less life out of the markets.’

GBP/AUD Exchange Rate Forecast: Political Developments Remain the Focus

This week is a quiet one for UK and Australian data.

Notable UK and Australian data due for publication in the coming sessions includes UK car production on Thursday. Australian construction data is due tomorrow and private capital expenditure data is expected on Thursday.

With data unlikely to influence the Pound to Australian Dollar exchange rate outlook, both currencies are more likely to be driven by potential political developments.

The Pound could be in for more gains if optimism around UK-EU Brexit negotiations improves.

On the other hand, the Pound could lose some recent resilience if relations appear to worsen. Deeper concerns about how Britain’s economy will weather the coronavirus pandemic towards the end of the year could also weigh on Sterling.

As for the Australian Dollar, it could strengthen if US political jitters continue to soften, or if coronavirus vaccine hopes rise.

Comments from the Federal Reserve’s latest meeting minutes report could also influence the Pound to Australian Dollar exchange rate tomorrow.
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