The pound has fallen lower as political uncertainty continues to weigh heavily on the pound. GBP AUD fell 0.7% today taking levels below 1.68 for this pair. Rates have now dropped more than five cents for this pair in the last week which has created an excellent opportunity to sell Australian dollars dollars in what has been a very sudden movement. The improved outlook from the Reserve Bank of Australia (RBA) which pointed to a better growth outlook whilst discarding concerns over the property market has been a big confidence boost down under. It doesn’t look like any further rates cuts are on the cards for the time being and that seems to be lending some support to the Aussie.
As the markets continue to digest the considerable political uncertainty there is likely to be major volatility for sterling Australian dollar exchange rates in these coming weeks. Assuming the conservative government can form a minority government with the support of the Democratic Unionist Party (DUP) then the pound should rally. However the Queens speech which is due to take place Monday 19th June could see problems ahead. Labour party leader Jeremy Corbyn has made clear he will try and vote down the Queens speech and if successful could see him try to form a government.
Clients selling Australian dollars would be wise to get in touch as the situation could change rapidly and this is a very new position the UK finds itself in.
Aside from the immediate issues, political uncertainty going forward could feed into weaker economic growth which is likely to put additional pressure on the pound. The housing market which has recently seen signs of a slowdown could now see further stresses with the additional political dimension. It also means it is highly likely the Bank of England will not seek to raise interest rates any time soon amidst the current political situation. The first hike could now be some time mid-2019 and this reason alone could result in a sustained period of sterling weakness.
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