Will Sterling Weakness Continue to Help the AUD to GBP Rate Improve?

Will Sterling Weakness Continue to Help the AUD to GBP Rate Improve?

Recent price movement for the Australian Dollar to British Pound has been favouring the AUD, as the Pound has been weakening for a number of reasons which we will touch on shortly. The positive movement for AUD/GBP has resulted in the pair trading almost at 1-year highs. This morning the pair traded well within half a cent from the annual high of 0.5649, and with the pair in positive territory at the moment I wouldn’t be surprised to see this annual high tested soon.

Negative Brexit News Causing Sterling to Slump

The Pound has been weakening across the board against major currencies for the past two days as sentiment seems to have shifted to the downside for now. Brexit talks between the UK and EU negotiators appear to be breaking down, and there have also been some disparaging remarks from UK officials regarding a trade deal being struck with the US before the US Presidential Election later this year.

Now that it’s official that the UK will leave the EU when the next transitional deadline elapses, Brexit talks are considered to be key for the Pound moving forward as if no deal is struck the UK will then trade on WTO (World Trade Organization) Rules which may not be as attractive as Brexit supporters had initially hoped.

Those of our readers following the Pounds value should be well aware of the importance of the trade talks and the potential impact they have on the Pounds value, and this week demonstrates this after we’ve seen the Pound lose a lot of value over a short space of time owing to a change in sentiment surrounding the ongoing talks.

The Brexit vote has been in the news a lot this week as an investigation into it suggests that there was Russian interference during the lead up to polls back in 2016. UK Prime Minister Boris Johnson has refuted that the UK public was influenced by the interference, but Brexit detractors view this differently. Johnson is travelling to Scotland today to meet with SNP leader Nicola Sturgeon and play down any tensions between Scotland and the rest of the UK. Scotland as a whole voted to remain within the EU, and now that the UK is getting closer to leaving tensions could be increased and the SNP’s push for another independence referendum could hit headlines once again.

Gloomy Economic Forecasts

Perhaps another reason for the Pound’s recent decline is the gloomy outlook for the UK in terms of the economic recovery following the lockdown and negative impact it has taken on the UK economy. The Eurozone has been in the news a lot recently after a €750bn recovery stimulus package has been agreed upon by its constituents. With the UK now excluded from this package I don’t think its helped sentiment regarding the UK economy in future, so this could be another reason for the weakening Pound.

Despite a flare up in coronavirus cases in Australia, and increasing tensions between the US and China politically, the Australian Dollar has remained resilient and its hit around an 18-month high against the US Dollar. Australia was previously regarded to have been one of the nations to best deal with the pandemic but it appears to facing the worst of the virus at the moment although the Australian Dollar is yet to be negatively impacted by this.

The flare up is expected to hit economic output in the third quarter down under by 0.75%, and I think if the situation gets worse we could see some gloomier economic outlooks as the impact on other developed economies has been more dramatic than that.

There will be a relatively busy end to the week in terms of economic data for the AUD/GBP pair. Later today Bank of England member Jonathan Haskell will be speaking, and tomorrow morning Retail Sales will be in focus and I expect this release to be followed closely due to this area of the economy being under the microscope due to the UK’s lockdown measures. Later this evening will also see released Australian PMI data for both the Services and Manufacturing sectors through June so these releases could also see market movement for AUD exchange rates.