Will GBP vs AUD Strengthen if a Brexit Deal is Reached? (James Lovick)

The pound to Australian dollar exchange rate remains on a weaker footing as Brexit remains the main concern for sterling exchange rates. After a cabinet meeting yesterday plans are now being ramped up for a no deal Brexit which should keep rates for GBP vs AUD at the lower levels of this recent range.

Rates for GBP AUD are currently trading around 1.76 for the pair and any Brexit developments over these coming weeks will almost certainly impact on the rates. The meaningful vote to be held in parliament will be held in January and should become the main focus in the ongoing Brexit debacle. The outcome of that vote to be held before the 21st January will determine whether or not there will be a deal.

The important point to highlight is that the default option if parliament does not agree the deal will be to move to no deal which will fall on WTO rules. This prospect is the main reason why the pound is on the back foot and if it were to happen there is a strong likelihood that there will be some economic disruption and the pound would likely fall. The Bank of England suggested a drop in the pound of 25% in a worst case scenario. If however there is a change of heart in the negotiations and and wording on the Irish backstop was changed for example then there could be material gains for GBP AUD.

The US Federal Reserve will meet later today where an interest rate increase of 0.25% is widely expected which will take interest rates up to 2.5%. This is important for Australian dollar exchange rates too as the level at which interest rates are set in the US had a direct bearing on the strength of the Australian dollar and rates for GBP to AUD. US President Donald Trump has been trying to put pressure on the Fed to not raise interest rates but whether this has any bearing on policy remains to be seen.

Perhaps more likely will be that the rate hike goes ahead tonight as planned but there could be a softening in stance for further rate rises in the New Year. A rate hike in the US could see the Australian dollar weaken as investors move their funds to the higher yielding dollar. However if the Fed look set to pause its rate tightening cycle in 2019 then this could see the Australian dollar make some gains.

For more information on the Australian dollar and assistance in transferring funds whether buying or selling Australian dollars then please feel free to get in touch with me James at [email protected]