The AUD/GBP has moved from the high to the low just 1.8% over the course of the month, making it a relatively low month for volatility. Following the huge 10% gain we have seen for the Aussie since the start of the Coronavirus outbreak sterling has made only a very small dent into this lost ground. There is a real argument at the moment that investors around the world are waiting to see how the dust settles and that looks to have been exasperated even further with lockdowns being reintroduced around much of the world.
In Australia itself the lockdowns have come thick and fast, with Melbourne being locked down for the last few weeks and there appears to be little intention to lift it. Australia geographically is quite unique as 80% of people live in the five major states so when there is even just a few lockdowns it effects the majority of the population. This is different in the UK for example where a lockdown in a regional area will have a limited impact on the recovery of the economy. The next few months could really start to shape the currency market depending on how different economies recover. Any region appearing to be doing well could reap some benefits as money venture in. It’s quite clear that gold has been considered the safest place for investor funds at the moment. However whilst a safe place to keep funds the returns are fairly limited.
The UK has been able to steadily recover from the pandemic with a few lockdowns in specific areas reintroduced. As the UK economy is driven by services there could be a unique opportunity to outperform some of the other economies around the world. From a social distancing point of view most of the UK’s GDP is created from jobs that arguably can be done from home. This means the road to recovery could be a lot smoother than elsewhere. This logic was proven recently by the Services Purchasing Managers Index which was recorded as a record high. This is a survey of executive around the industry who believe there is potential for major growth in the coming months.
Brexit Effect on Sterling
Sterling would potentially benefit greatly from a resurgence in UK business and we could start to see some of the lost ground over the last few months made back up against the Aussie. The UK is also hoping for a solution to Brexit being not to far away as negotiations between the EU and UK continue. This time last week there was not positive updates with both heads of negotiations from either sides pointing the finger as to why there is yet to be a breakthrough. However there is a under lying belief that a basic deal will be agreed, which will mean that a no deal Brexit that is avoided.
Should the uncertainty of a no deal Brexit be mitigated then it seems perfect reasonable to expect some Sterling strength. Over the last few weeks we have seen the pound make up some ground which does suggest there is more positive than negative expectations. However, with all things Brexit it could well be left to the last minute which means the uncertainty may not be close to slowing down just yet. Make sure you keep an eye on the Brexit story if you have a transfer involving Sterling as there could be a major swing following a month of low volatility. The AUD/GBP is still currently very favourable for Aussie sellers but anyone looking to buy Aussies may well be tempted to hang on for a bit and wait and see what the end of they year brings from a Brexit and global economy perspective.
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