Pound Australian Dollar Exchange Rate News: GBP/AUD Soars on Hopes New UK PM Could be Stabilising Influence

October 24, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Soars on Hopes New UK PM Could be Stabilising Influence

Title: Pound Australian Dollar Exchange Rate News: GBP/AUD Soars on Hopes New UK PM Could be Stabilising Influence

Alias: GBP/AUD exchange rate climbs as Sunak is likely to become next UK Prime Minister

Description: The Pound jumps up against the Australian Dollar as Sunak pulls ahead in leadership race.

Keywords: Pound, GBP, Australian Dollar, AUD, Exchange Rates, UK Politics, Leadership Race, Rishi Sunak, PMI’s, RBA, Interest Rate Hikes

GBP/AUD Exchange Rate Strengthens amid Hope for UK Political Stability

The Pound to Australian Dollar (GBP/AUD) exchange rate gained ground on Monday amid indicators that Rishi Sunak is poised to become UK Prime Minister.

At time of writing the GBP/USD exchange rate traded at around AU$1.7940, which was roughly up 1.4% from Monday’s opening levels.

Pound (GBP) Firms as Sunak Leads PM Race

The Pound (GBP) was up against the majority of its peers on Monday as former ex-chancellor Rishi Sunak was poised to become the UK’s next Prime Minister.

Sunak pulled ahead after former PM Boris Johnson dropped out of the race on Sunday. This relieved markets, who were concerned about the repercussions of re-electing a former Prime Minister. It appears markets are banking on Sunak’s financial experience to bring some stability to Sterling.

According to Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown:

‘[Johnson] had threatened to cause fresh political instability, given that it’s less than two months since he left the job, so his retreat from the race brought a sigh of relief for sterling and an even bigger sigh of relief on the bond markets.’
‘It’s an indication that bond vigilantes have been pacified by the expectations of a calmer political horizon ahead with fiscal responsibility forecast to be the new mantra of the incoming Prime Minister.’

Despite being buoyed by a more positive political outlook the Pound was capped somewhat by poor PMIs on Monday. In October the service and manufacturing sectors contracted. The services index dropped from 50 to 47.5, while the manufacturing index fell from 48.4 to 45.8.

Australian Dollar (AUD) Drops amid Domestic Concerns

The Australian Dollar (AUD) struggled to find much support on Monday as the ‘Aussie’ was hit by poor PMI’s.
According to the PMIs released on Sunday night manufacturing reported a slowing of growth in October, dropping from 53.5 to 52.8. The service sector also took a hit, reporting a contraction from 50.6 to 49.
The underwhelming data saw AUD investors reprice their expectations for future Reserve Bank of Australia (RBA) interest rate decisions. Particularly in the wake of a speech from a RBA policymaker in which he made it clear future hikes would be data dependant.

RBA policymaker Chris Kent on Sunday he said:

‘At its October meeting, the Board raised rates by 25 basis points. The Board expects to increase interest rates further in the period ahead… The size and timing of rate increases in Australia will depend on incoming data’.

GBP/AUD Exchange Rate Forecast: UK Politics to Drive GBP Up?

Looking ahead, movement for the Pound Australian Dollar exchange rate could be driven by the outcome of the UK leadership race.

Sunak is currently favourite to win the vote for PM, if he’s successful the Pound could extend its gains. However, his running mate Penny Mordaunt is close to gaining the 100 backers needed to stay in the race. Could an unexpected outcome cause fresh volatility for Sterling?

Turning to the Australian Dollar, the currency is likely to remain under pressure as investors adjust to the poor data release. It’s possible that any news from China could limit the proxy-currency’s losses.

In the meantime, AUD could see significant movement amid a fluctuating market mood.

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TAGS: Pound Australian Dollar Forecasts