Sterling exchange rates have begun the week on the backfoot, with the AUDGBP exchange rate trending lower at 1.8240 at the time of writing. There has been a slight sell-off of the pound since we saw it climb to its highest level against the Australian dollar last week in around 6-weeks when the AUDGBP pair almost climbed as high as 1.84.
Perhaps one of the reasons for the small sell-off of the pound can be attributed to the comments made last week by Michel Barnier, the EU’s head of trade negotiations with the UK. After a week of trade talks he said on Friday that a trade deal ‘seems unlikely’ at this stage, and he also added that he is ‘disappointed’ and ‘concerned. On Friday, the pound had actually been having a strong day as Retail Sales figures releases early on Friday morning beat expectations and showed a higher figure than pre-lockdown back in February. The gains for Sterling were quite short-lived though as by that afternoon Sterling was declining as a result of the comments from Michel Barnier. His UK counterpart, David Frost also spoke of ‘little progress’ and highlighted the issues regarding fisheries policy and state aid rules.
Since the Brexit vote over 4-years ago now, we’ve seen a common pattern within the currency markets whereby whenever there are talks of positive Brexit talks there tends to be a boost to the pound’s value, but when talks are apparently going badly we tend to see the pound fall.
Brexit talks are likely to continue to be within the public eye for the remainder of this year as the UK is set to depart the EU entirely as the new year starts as the current transitional deal will finish at the end of the year. We know that there won’t be another extension as the UK government opted not to extend the current transitional deal back in June, so the talks could heat up as the year progresses which could result in further swings for the pound. Both the UK and EU negotiators have earmarked October as the time when they would like a deal to be agreed upon, as there will be an EU Summit taking place in the middle of October when all the EU leaders will be present to comment. It will also offer enough time to have the new trade rules written into law in time for the new year so October could be key in my opinion, and I think there could be market movement for the pound around that time for the aforementioned reasons.
With regards to the Australian dollar, it’s been one of the best performing currencies so far in 2020 thanks to dealing with the coronavirus impressively compared to many other major economies, although there have been some recent spikes down under which has concerned some investors.
Some experts though, such as analysts at Dutch investment bank Rabobank, believe that the Aussie dollar could come under pressure in the upcoming months and become a victim of its own success. Should AUD become overly expensive compared to the US dollar, then the economy could be negatively impacted, and the Reserve Bank of Australia may look to address this to avoid an economic slump. Also, the tensions between the US and China and the lack of progress regarding trade talks could also hamper the Australian economy, especially its agricultural sector which is at risk of facing increased tariffs so there are some concerns surrounding aspects of the Australian economy.
There are few economic data releases out of the UK this week, which is in contrast to last week when we saw quite a few with Friday’s early releases resulting in a boost to the Pound’s value. Perhaps the key events of the week for the pound specifically, and therefore the AUDGBP rate could be when Bank of England members Andy Haldane and Andrew Bailey will be speaking. Haldane will be on Wednesday and Governor Bailey will be on Friday and I expect any references to monetary policy to have to potential to impact GBP exchange rates.
Data out of Australia is also light this week, with Thursdays Capital Expenditure perhaps the weeks highlight as it covers the private sectors spending intentions. Do feel free to get in touch if you wish to plan around these news releases using the form below, I’ll be happy to respond personally and discuss your requirements.