Pound Trading Higher but Markets on Alert as Fears of a Virus Pandemic Grows

AUD GBP Drops as Australian Business Activity Disappoints

The GBP v AUD exchange rate was edging higher in Monday trading as a light economic calendar left traders to continue the recent trend of pound strength after data releases in the U.K. and Australia showed some weakness down under.

The pound was trading as high as 1.9650 overnight but had slipped under the 1.9500 figure. Markets are on alert on Monday after stocks plunged over fears that the Coronavirus was spreading outside of China.

Currency Markets Pause After Virus Fears Spook Stocks

Global stock markets were selling off on Monday over fears that the Coronavirus was spreading outside of China and into Europe. Australia’s ASX 200 was lower by 3.5% after the market had struggled to hold last week’s record highs. Stocks in Europe were slightly worse with the British FTSE 100 index down close to 4%.

With a quiet economic calendar day for the Australian and U.K. economies, traders are continuing to favour the pound after recent strength in the U.K. economy, however the spread of the virus into the U.K. could reverse that trend if Australia is seen as a safe haven. Gold was rallying 2.4% on the day after last week’s strong move higher and the precious metal is now trading above $1680, which is its highest level in seven years.

Cases of Virus Growing Outside of China

The spread of the Coronavirus saw 77,000 people infected in China but this was contained by the aggressive action of Chinese authorities to lock down large cities. Production was also shut down as employees were given extended holidays from the New Year celebrations.

Fears are now growing that the spread will continue after more than 1200 cases were confirmed in 30 other countries and Italy was one of the problem areas with six deaths reported. The spread in China was a real threat to supply chains across the globe and markets are now taking profits from the recent big gains in the stock market.

The GBP v AUD forecast will likely be driven by the virus situation as the economic calendar is light for the week in the respective economies. Pound strength would continue if the market trades from the recent economic data but there is potential for the Australian dollar to gain if the virus continues to spread through Europe and threatens production and supply chains.

If you would like to know more on factors influencing AUD/GBP exchange rates, feel free to contact myself, Joseph Wright, using the form below.