Pound Australian Dollar (GBP/AUD) Exchange Rate Hits Lowest Level Since January 2019 on No-Deal Brexit Odds

December 11, 2020 - Written by Frank Davies

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Hits Lowest Level Since January 2019 on No-Deal Brexit Odds

Higher No-Deal Brexit Odds Weigh Heavily on GBP/AUD Exchange Rate

Resurgent fears over the odds of a no-deal Brexit drove the Pound Australian Dollar (GBP/AUD) exchange rate to its lowest level since January 2019.

As European Commission president Ursula von der Leyen reported to EU leaders that a no-deal scenario now has a ‘higher probability’ than a deal the mood towards the Pound generally soured.

This drove GBP exchange rates lower across the board in spite of the fact that UK-EU talks are still set to run until Sunday, leaving the possibility of a last-minute breakthrough on the table.

Even so, with the UK looking at significant risk of facing an end to the Brexit transition period without any trade deal in place support for the Pound may struggle to recover in the days ahead.

Australian Dollar Vulnerable to Dovish RBA Meeting Minutes

While market optimism over the rollout of Covid-19 vaccines showed signs of easing, in spite of the US approval of the Pfizer vaccine, this failed to put major pressure on the Australian Dollar.

However, AUD exchange rates could face fresh volatility next week with the release of the Reserve Bank of Australia’s (RBA) December meeting minutes.

Signs of greater dovishness among RBA policymakers could see the Australian Dollar fall further out of favour with investors.

Although markets do not expect to see any major monetary policy changes in the near future a dovish set of minutes may still offer the GBP/AUD exchange rate a degree of support.

On the other hand, if policymakers show less pessimism over the economic outlook than anticipated this could give the Australian Dollar a fresh boost.

Signs of strength in November’s Chinese industrial production data may also offer support to AUD exchange rates, given that the Australian Dollar commonly functions as a market proxy for sentiment towards the world’s second-largest economy.

As long as the Chinese manufacturing sector shows sustained signs of recovery the appeal of the Australian Dollar looks set to improve.

Rising UK Unemployment Rate Forecast to Extend GBP/AUD Exchange Rate Downtrend

Brexit developments are likely to dominate the outlook of GBP exchange rates for the foreseeable future.

Even so, fresh pressure could come to bear on the Pound if October’s UK unemployment rate picks up as forecast.

Evidence of a fresh deterioration within the labour market may expose the Pound to additional selling pressure, with higher unemployment likely to drag on the growth of the wider economy.

As stronger levels of consumer spending have previously helped to shore up economic growth any rise in unemployment could see the GBP/AUD exchange rate kept firmly on the back foot.

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TAGS: Pound Australian Dollar Forecasts