The pound to Australian dollar exchange rates has rocketed higher with levels breaking 1.85 for the GBP to AUD pair. The pound has spiked higher after a statement from Theresa May yesterday where she referenced a potential extension to Article 50. There has been pressure from members of her cabinet who have threated to resign unless no deal is removed as a potential outcome.
The markets must now wait for the meaningful vote to be held before 12th March which will see whether the existing withdrawal agreement can be pushed through parliament. If the deal does not go through as insufficient changes have been made to the backstop then there will be a vote on 14th March for an extension of Article 50 if MP’s reject a no deal.
Meanwhile Prime Minster Theresa May is in Brussels meeting with Michel Barnier to try and make legally binding changes to the contentious Irish backstop. The attorney general Geoffrey Cox has also been present in meetings to try and work a legal codicil to go with the withdrawal agreement that would carry legal force and would then pass through parliament. When the outcome of these talks is known this is likely to result in considerable market movement for the GBP vs AUD pair. Expect high volatility and potential good opportunities on the back of any new developments surrounding Brexit in these final stages.
The Australian dollar meanwhile has found support after a calm statement from US Fed Chair Jerome Powell indicated the Fed would be patient with interest rates. Since the beginning of the year the Fed have been more dovish in its approach to raising interest rates and softening its stance with concerns of a slowdown in the US and more importantly the global slowdown stemming for China which is being exacerbated by the US China trade war. Investors are now considering whether to continue to invest in the dollar if the Fed is coming to an end of its rate tightening cycle which bodes well for the commodity currencies including the Australian dollar.
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