December 9, 2021 - Written by John Cameron
STORY LINK Pound Australian Dollar Exchange Rate Tries to Regain Lost Ground as UK Announces New Covid-19 Restrictions
Pound Australian Dollar (GBP/AUD) Exchange Rate Attempts to Regain Losses As UK Government Unveils Plan B Restrictions
The Pound Australian Dollar (GBP/AUD) Exchange Rate fell to its lowest point in three weeks overnight, after the UK government announced its raft of ‘Plan B’ restrictions in order to combat the Omicron variant. The pairing begun to pare some of these losses since the start of this morning’s session however.
At time of writing the rate is at around $1.8463, which is up roughly 0.2% from this morning’s figures.
Pound (GBP) Falls to Fresh Lows as UK Government Announces Fresh Covid-19 Measures
The Pound (GBP) fell overnight to its lowest point against the US Dollar since December 2020. This followed the UK government’s announcement of fresh restrictions in order to limit the spread of the newly discovered Covid-19 Omicron variant.
Sterling has regained some of its losses this morning but still sits far from its position yesterday.
The announcement on Wednesday saw Prime Minister Boris Johnson unveil the country’s ‘Plan B’ measures that include working from home where possible, mandatory facemasks in public, and vaccine passports for large venues such as nightclubs.
Immediate reaction to the news saw shares in hospitality and travel companies fall as many small businesses vented their frustrations at the government’s lack of support ahead of what would be the country’s busiest trading season. Emma McClarkin, chief executive of the British Beer & Pub Association, warned of how the new restrictions could affect businesses under her watch:
‘Make no mistake, this is a huge blow for our sector as it further undermines consumer confidence and is devastating for pubs based near offices and in town centres. The festive period is crucial to the recovery of our sector, so these restrictions could not have come at a more important trading time. They threaten the viability of pubs who will lose vital revenue over the Christmas period and so the Government will need to look at providing support.’
The fresh restrictions are also likely to further dampen market speculation of an early interest rate hike by the Bank of England (BoE). Martin Beck, chief economist to the EY ITEM CLUB, had the following to say on Omicron’s impact on the BoE’s December meeting:
‘Granted, if the new variant does worsen supply bottlenecks, the result could be even stronger inflationary pressures. But, as is the case with the global forces which have pushed inflation up in recent months, tighter monetary policy would not address price pressures from renewed COVID disruption. If Omicron’s economic impact were to prove more significant than expected, an interest rate rise in December’s meeting might have to be quickly reversed.’
Australian Dollar (AUD) Boosted by Chinese Data and Optimistic Market Mood
The Australian Dollar (AUD) has risen against its competitors today amid a risk-on market mood and upbeat data from China.
China’s rate of inflation for November printed at 0.4%, above forecasts of 0.3% a drop from the previous month’s rate of 0.7%. The yuan was pushed to a three-year high by the markets in response to the data with in turn lifted the Australian Dollar as it acted as a proxy for the currency.
Commodity prices are also likely to continue to affect the ‘Aussie’, as the price of iron ore continues to fluctuate by nearly -0.5% today. This follows news yesterday that demand for the commodity hit its highest point since June 2020, as China seeks to stockpile the commodity as it simultaneously ramps down steel production.
GBP/AUD Forecast: Will GDP Figures Cause Fresh Losses for The Pound?
Looking to the end of the week, GDP figures from the UK are forecast to report growth slowed in October after having risen for two consecutive months. These figures could see confidence in the UK’s economic recovery further undermined and, when coupled with Wednesday’s announcement of COVID-19 restrictions, could see Sterling drop further.
The rest of the week will see no further significant data for the Australian Dollar, so expect the currency to continue to be affected by commodity prices and further economic developments from China.
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