Pound Australian Dollar (GBP/AUD) Exchange Rate Strengthens as Sunak Becomes Prime Minister

October 25, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Strengthens as Sunak Becomes Prime Minister

Pound Australian Dollar Exchange Rate Strengthens as Sunak is Appointed UK Prime Minister

The Pound Australian Dollar (GBP/AUD) exchange rate strengthened on Tuesday following Rishi Sunak’s appointment as Prime Minister of the UK.

The news prompted GBP/AUD to trade at around AU$1.7959, an increase of roughly 0.5% from Tuesday’s opening rates.

Pound (GBP) Rallies as Sunak Becomes Prime Minister

The Pound (GBP) rallied on Tuesday as Rishi Sunak began his first day as UK Prime Minister. Sunak’s approach of fiscal responsibility saw investors react positively to GBP, bolstering it against most major peers.

Furthermore, Sunak’s appointment saw the bond yields rally, continuing their recovery since Truss’ resignation and Johnson’s withdrawal from the leadership race.

The chief Eurozone and UK economist at UBS Global Wealth Management, Dean Turner, expanded upon this. He stated: ‘The market reaction to Johnson’s withdrawal and Sunak’s win has seen gilt yields fall sharply across the curve, while the pound has been steady against the major crosses. Sunak’s victory will not call a halt to the political volatility in the UK, but the temperature should cool significantly.’

Between the gilt yield recovery and the Pound seeing a rally, Sunak has had an immediate effect in restoring market stability on Tuesday, simply by taking office.

However, the gains made by Sterling on Tuesday were capped by data from the Office for National Statistics (ONS) which demonstrated a steep increase in the price of the lowest cost food items.

The data served to demonstrate just how much of an impact the cost-of-living crisis is having on UK residents, and provided a sombre edge to Tuesday’s session.

Australian Dollar (AUD) Muted as Mixed Market Mood Strikes

Tuesday saw the Australian Dollar (AUD) endure mixed trade as the market sentiment soured over the course of the session.

As a risk-sensitive currency, the ‘Aussie’ was unable to gain ground during the session, as investors struck a bearish tone and favoured safe-haven currencies.

Adding to this was pressure from both domestic and international factors. Xi Jinping began his third term and will continue the zero-covid policy. This affects AUD due to its nature as a Chinese proxy-currency. Furthermore, dour economic data from China further served to cap AUD’s gains.

The Australian Labor government announced their first budget on Tuesday and were unable to inspire strong trade for the ‘Aussie’ as the GDP growth for Australia was downgraded. Economic growth was also expected to slow in 2023/24, which added to recession fears.

The budget highlighted the impact inflation and other issues held on the country, stating: ‘Higher-than-expected inflation may further constrain consumer spending by lowering real incomes, while a potentially weaker economic outlook could see households exhibit precautionary savings behaviour that further weighs on consumption.’

Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: Sunak Actions in Focus

Looking ahead, the core catalyst of movement is likely to be Rishi Sunak’s first actions as Prime Minister. With his fiscal orthodoxy approach expected, the Pound may finally see a return to stability as he focuses on reassuring investors and calming the markets.

For AUD, the focus will be on the inflation rate. With an increase in inflation expected, from 6.1% to 7%, this may prompt action from the Reserve Bank of Australia, which could support the ‘Aussie’.

Elsewhere, the market mood may affect the pairing as the global economic outlook continues to grow gloomier.

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