GBP AUD has now found a degree of support as the markets begin to settle down following the decision that Britain will now withdraw from the European Union. Sterling exchange rates had crashed immediately following the outcome amidst both the economic and political uncertainty.
What has made this crisis very different from the financial crisis of 2008 for example is that this time the major uncertainty has been on the political side.
With the appointment of Theresa May as Prime Minister last week and a new cabinet in place, the markets have effectively been leap frogged by 2 months which had been the initial expectation for a new Prime Minister to be in place. As such UK has now been given that political clarity it so desperately needed which is why the pound has started to soar higher.
Will the pound climb higher against the Australian dollar?
Whilst Britain is actively discussing trade deals with potential trade partners which is very positive this will however take time and so there is a degree of uncertainty that goes with this. At the same time whilst Britain has not invoked Article 50 yet, when it does so, the pound is likely to lose ground simply for the reason that Britain will be going past the point of no return.
As things stand it is likely to be invoked at the start of 2017 although there are no guarantees as to when it will actually happen. Pressure is also likely to mount from EU leaders and again global politics will come into play.
For the moment the mood has turned unquestionably upbeat in Britain since Theresa May has become Prime Minister. The government also looks and feels strong despite some global criticism of Boris Johnson’s appointment as Secretary of State. With a prospective major takeover of British owned ARM Holdings it is clear that the UK is very much open for business on the global level and this feel good factor should play into sterling strength.
A question mark does hang over the Bank of England meeting in August where it is unclear at this stage whether the central bank will cut interest rates. The markets had been expecting a rate cut last week which did not materialise. A cut in August is now widely expected.
The issue the Bank of England now has is to do with inflation and the strategy is to look at the inflation outlook next month in order to decide the course of action. A pickup in inflation could actually be a serious concern and any cut could push inflation higher which would be undesirable. Expect major market volatility at that meeting next month!
Selling Australian Dollars?
For anyone selling Australian dollars there is an excellent opportunity currently available which has come about on the whole from events in the UK as far as AUD GBP is concerned. There is talk that Reserve Bank of Australia (RBA) may be looking to cut interest rates further which would have the effect of weakening the dollar. After the election in Australia is now out of the way the RBA may look to cut at the August meeting so sellers may wish to act sooner rather than later.
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