Pound Australian Dollar (GBP/AUD) Exchange Rate Muted amid Risk of UK Credit Downgrade

October 6, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Muted amid Risk of UK Credit Downgrade

Pound Australian Dollar (GBP/AUD) Exchange Rate Wavers amid UK Credit Downgrade Risk

The Pound Australian Dollar (GBP/AUD) exchange rate was muted on Thursday as Fitch Ratings downgraded the UK’s credit rating outlook from ‘stable’ to ‘negative’.

The GBP/AUD exchange rate remained flat at around AU$1.7439, showing no change from the morning’s opening rates.

Pound (GBP) Mixed as Market Sentiment Sours Towards Sterling

The Pound (GBP) struggled to attract support on Thursday after Fitch Ratings joined the S&P in cutting the outlook for the UK’s AA- credit rating from ‘stable’ to ‘negative.

This was attributed to recent political and economic uncertainty, particularly in the wake of Chancellor Kwasi Kwarteng’s mini-budget.

A statement released by Fitch Ratings explored this further: ‘The large fiscal stimulus, announced without compensatory measures or an independent evaluation of the macroeconomic and public finances’ impact, and the inconsistency between fiscal and monetary policy stance given strong inflationary pressures, have in Fitch’s view, negatively impacted financial markets’ confidence and the credibility of the policy framework, a key long-standing rating strength.’

Market sentiment in Thursday’s session began to sour towards GBP. In conjunction with a downbeat global outlook, domestic events such as Chancellor Kwarteng’s crisis talks with the high street banks over the spiking mortgage rates served to clip Sterling demand

Investors instead turned towards safe-haven currencies, leaving the volatile GBP behind.

Australian Dollar (AUD) Weakened by Disappointing Trade Figures

The Australian Dollar (AUD) weakened against many of its peers during Thursday’s trading session.

This was caused by the unexpected narrowing of Australia’s trade surplus, which hit a six-month low of AU$ 8.32bnin August, far below what the market expected.

Due to the importance of trade to the Australian economy, this narrowing weighed heavily on AUD as the session continued, causing a drop in exchange rates across the board for the ‘Aussie’.

Compounding this was the market mood. Risk-averse sentiment returned during Wednesday’s overnight trade and continued through Thursday’s European session. This resulted in AUD trading poorly against other, safer currencies such as the US Dollar as the markets turned bearish.

Pound Australian Dollar (GBP/AUD) Forecast: Domestic Disturbances May Weigh on the Pound

In the near future, domestic news in the UK is likely to shape the Pound Australian Dollar (GBP/AUD) exchange rate as the political situation remains highly volatile.

Prime Minister Liz Truss’ position continues to seem tenuous, and alongside a combative tone being struck by her to defend her fiscal policy, the continuing clash with the Bank of England’s (BoE) desire to curtail inflation may dent GBP.

Risk-sentiment may also impact the GBP/AUD exchange rate, should a risk-averse mood continue in Friday’s session.

Overnight on Thursday will see the Reserve Bank of Australia (RBA) release its latest financial stability review.

Following the RBA’s smaller-than-expected rate hike earlier this week, could a cautious outlook from the bank weaken the ‘Aussie?

Finally, the GBP/AUD exchange rate may be impacted by global market trends. As a global recession seems likely and investors move towards safe-haven currencies, the risk-sensitive ‘Aussie’ and volatile Sterling could see drops across the board.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Australian Dollar Forecasts