Sterling has managed to hold onto much of its recent gains against the Australian dollar, despite a shock decision from the Bank of England last week that under usual circumstances would result in a sharp sell-off in the pound’s value.
The interest rate within the UK has been cut twice in recent weeks with the base rate now back down to 0.1%, which is a record low after stating the year at 0.75%. These decisions have been taken by the Bank of England, which no pre-warnings in order to counter the inevitable economic slowdown induced by the COVID-19 virus as businesses are shut down for the foreseeable future.
The current GBPAUD interbank exchange rate is trading around the highest levels seen since pre-Brexit, and so far the rate has managed to hold its ground north of the key 2.00 level which tends to be a benchmark for the pair. It appears that the concerns of a slowdown in Australia are outweighing the concerns surrounding the UK economy, which is perhaps due to the interconnection of the Australian and the Chinese economy. Oil prices have also dropped to 17-year lows recently and we have seen all commodity currencies fall recently due to this which is another factor in the weakening AUD currency value.
Safe haven currencies, such as the US dollar and the Swiss franc have strengthened dramatically in recent weeks as the seriousness of the pandemic has come to light, and it’s the pound along with commodity currencies that have seen a sell-off. Sterling appears to suffer in times of dramatic market downturns as the UK carries a large current deficit, due to the fact that imports outstrip exports by a significant margin. This is why the pound has lost a lot of value against the majority of currency pairs with the commodity currencies being exceptions for the aforementioned reasons.
We have a busy schedule this week for economic data releases as on Wednesday morning there will be a raft of data released with inflation levels perhaps the key release. Also on Thursday the Bank of England will comment on their recent decision to cut interest rates and any comments regarding future monetary policies could impact GBP exchange rates especially in the current climate.
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