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Pound Australian Dollar Exchange Rate News: GBP/AUD Slides amid Brexit Risks

June 28, 2022 - Written by John Cameron

Pound (GBP) Under Pressure from Renewed Brexit Troubles

The Pound (GBP) is softening against its rivals today as the Northern Ireland protocol bill passes its first parliamentary vote as the UK intends to scrap part of the deal.

Plans to unilaterally alter the Northern Ireland protocol, a move that has drawn criticism from not only the EU, but from several oppositions across the world, has now edged closer to being finalised.

The first hurdle has been passed as MPs voted 295 to 221 in favour, despite growing concerns of a potential trade war with the EU as Brussels have repeatedly stated that legal action will be pursued if the UK reneges on its original agreement.

Amongst numerous opposition, including several Conservative backbenchers, the shadow foreign secretary David Lammy lambasted the legislation change:

‘This bill is damaging and counterproductive. The strategy behind it is flawed. The legal justification for it is feeble. The precedent it sets is dangerous, and the timing could hardly be worse. It divides the United Kingdom and the European Union.’

Elsewhere, growing fears of a global recession continue to weigh on the global economy, and the Pound, as economists at CIBC Capital Markets warn of the Bank of England (BoE) prioritising growth over containing inflation:

‘Sliding consumer sentiment and spending, as real earnings head lower, will help squeeze demand-side inflationary pressures out of the system. Building macro headwinds suggest that the BoE will not be as aggressive as the market discounts. We expect a protracted policy pause post once rates reach 1.75% in September.’

Australian Dollar (AUD) Wavers amid Dwindling Market Sentiment

The Australian Dollar (AUD) strengthened overnight before trading in a narrow range today as the market grows increasingly cautious amid fears of a looming recession.

S&P Global have slashed Australia’s 2022 GDP growth forecast to 3.6% from 4%, highlighting growing concerns as soaring inflation continues to grip the country. With higher energy and commodity prices, inflationary pressures continue to weigh on the global economy. In their latest economic assessment for the Asia-Pacific region, S&P Global commented:

‘Growth is easing in the region as export demand softens in line with an expected slowdown among major global economies.’

‘However, the recovery in domestic demand from COVID is largely intact, so overall growth has softened only modestly.’

‘This is especially so in Australia, India, Japan, Indonesia and the Philippines where growth is more domestic demand-oriented.’

Elsewhere, disappointing news out of China also weigh on the ‘Aussie’ as China’s National Development and Reform Commission (NDRC) has rejected heavy stimulus expectations. With China facing their own new challenges of stabilising jobs and soaring prices due to the Ukraine crisis and Covid, large stimulus packages to ease economic woes cannot be counted on.

With the gradual opening up of the world’s second largest economy now underway, it could be some time before a strong recovery can be expected, hampering the Australian Dollar as a proxy currency to China.

GBP/AUD Exchange Rate Forecast: Hawkish Bailey to Boost the Pound?

Looking ahead, with no data to go on for the rest of the day, all eyes will be on the European Central Bank (ECB) Forum tomorrow as BoE Governor Andrew Bailey is set to make a speech. A continued hawkish stance from him could further hint at the central bank’s willingness to continue hiking rates to combat inflation. The Pound could see a much-needed boost.

Elsewhere, retail sales are due to print for Australia tomorrow, with an expected fall from the previous month. If data prints as forecasted, the ‘Aussie’ could encounter headwinds.

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