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Pound Australian Dollar Exchange Rate Strengthens amid Upbeat Mood

November 8, 2021 - Written by John Cameron

Pound Australian Dollar (GBP/AUD) Firms after Last Week’s Low

The Pound Australian Dollar (GBP/AUD) exchange rate is edging higher today amid a risk-on market mood. GBP/AUD is up just under 0.2% at the time of writing to trade at about AU$1.8267.

Upbeat Chinese data and rallying equity markets following the news of Pfizer’s antiviral Covid-19 treatment pill have fuelled a risk-on mood.

However, GBP gains have been limited by UK-EU Brexit-related tensions, while the Reserve Bank of Australia’s (RBA) interest rate decision last week and accompanying forward guidance continues to weigh on AUD.

Pound (GBP) Strengthens despite Brexit Concerns

The Pound has strengthened today amid an upbeat market mood that is weakening other major currencies. GBP/AUD gains seem to be capped, however, by Brexit-related tensions.

Speculation is growing that the UK will activate Article 16 of the Northern Ireland protocol, increasing the risk of a trade war with the EU.

Talks between the UK and EU are ongoing over the Northern Ireland protocol and how to limit disruption to trade at the Northern Irish border.

However, the UK government is also demanding the removal of the role of the European Commission and the European Court of Justice in overseeing the protocol.

With talks appearing to remain in deadlock, reports the UK could use Article 16 have caused concerns that the UK-EU trade deal could also collapse.

Irish Foreign Minister Simon Coveney commented on the UK-EU Trade and Cooperation Agreement, saying:

"One is contingent on the other so that if one is being set aside there is a danger that the other will also be set aside by the EU."

Following last week’s RBA and Bank of England (BoE) decisions to leave interest rates unchanged, GBP/AUD is making modest gains from the six-month low the pairing sank to at the start of last week.

Australian Dollar (AUD) Supported by Risk-On Trade

The risk-sensitive Australian Dollar is ticking higher today amid risk-on trade, although the ‘Aussie’ is struggling against Sterling.

Chinese trade data revealing the country’s trade surplus soared to a record $84.54 billion in October has lifted market sentiment.

As AUD is a proxy to the Chinese economy, the data provided support to the ‘Aussie’.

News of Pfizer’s Covid-19 antiviral pill also bolstered market risk appetite. According to clinical trial results, the pharmaceutical giant’s experimental treatment pill, Paxloid, cuts the risk of death or hospitalisation by 89%.

However, AUD exchange rates are still under pressure from the RBA reiterating its dovish stance in its monetary policy statement, and Governor Philip Lowe pushing back against aggressive market pricing for a rate hike.

Pound Australian Dollar Forecast: Brexit and Central Bank Policy Remains in Focus

The GBP/AUD exchange rate could be set for volatility in the coming days if speculation the UK government will use Article 16 of the Northern Ireland agreement proves to be correct. The ensuing UK-EU trade uncertainty may weigh on GBP exchange rates.

Speeches from the BoE policymakers ahead of UK third quarter GDP on Thursday, starting with Governor Andrew Bailey later today, may stoke volatility in Sterling.

Investors will look for additional insight into the Bank’s forward guidance after last week’s BoE announcement and accusation the Governor is the second ‘unreliable boyfriend’.

Meanwhile, the Australian Dollar will remain sensitive to market risk appetite as major central bank policy, rising inflation, and growth concerns drive swings in market mood.

Australian business confidence data for October released tonight may lend some support to the Australian Dollar, with forecasts pointing to an improving mood in business morale.

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