The GBP v AUD exchange rate was higher again on Tuesday as traders absorbed recent data trends in a quiet calendar week. The pound was 0.6% higher versus the Australian dollar and trading near 1.9700, whilst global stock markets tried to bounce from yesterday’s heavy selling over the coronavirus fears.
Pound Strength Continues Post-Brexit and Election
The strength of the British pound recently has been driven by sluggish growth prospects in Australia and an end to the Brexit confusion for business and investors. Recent manufacturing and services data were also diverging with Australia’s sectors contracting, while the U.K. saw expansion. This is weighing on the prospects for Australia’s interest rates and recent U.K. inflation was also strong, which would favour the U.K. for future interest rate-led trades. At present, the bushfire crisis and the fears of the virus effects on China’s economy are also dragging on the Aussie currency outlook.
For the week ahead, the economic calendar is quiet for the U.K. and Australian economies, so the exchange rate will likely be affected by political/environmental news. The pound is only 300 pips away from the 2.0000 figure and sellers would likely emerge around that key figure.
Markets Try to Bounce from Coronavirus Panic Selling
Yesterday saw heavy selling in the key stock market indices with stocks in the U.K. and Australia following the Dow Jones lower by 4% as investors feared that the Coronavirus was spreading beyond China, as other nations reported new cases, particularly in Italy, which brings rise to the threat that Europe could see its cases grow.
If the spread was to continue, it could be a game-changer for the recent pound gains if the virus made its way to the U.K. or hit some of its European export markets. Yesterday it was Italy that was a new hotspot for the virus and today brings news that a hotel in Tenerife, Spain was on lockdown over fears for hundreds of guests.
Other countries seeing infections rising were South Korea and Iran. The World Health Organization said that countries should be, “in a phase of preparedness”. Both the U.K. and Australia have said that they are prepared for any outbreak in their respective countries.
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