The pound continues to trade within a tight range as the markets still await new developments in the Brexit negotiations. The pound is currently trading at 1.1270 against the Euro and 1.39 against the US dollar having seen reasonable gains across the board today. Those clients looking to sell Euros for pounds have been presented with another good opportunity to convert. The focus is now largely on Brexit with the terms of the transitional arrangement expected to go through in the next couple of weeks.
The next round of negotiations which will cover the thorny issue of the future trading terms and are expected to commence towards the end of March when the pound could see considerable volatility at this time. In my view both sides are likely to start at the furthest sides of the negotiating table with clear red lines which could make a deal seem almost impossible at first. As talks progress then the pound could start to rally if it looks like there is a deal to be had. This is something to be aware of for the medium term and any positive comments could help the pound rally especially when it comes to financial services. The outlook for the short term however does not look so bright with no real certainty being offered at this time. Certainly from a selling perspective there are some excellent prices available at present for buying pounds.
The Australian dollar is another currency with a less clear future and is seeing a lot of volatility at present on the back of developments in Australia and overseas. The policies being adopted by US President Donald Trump are of concern for Australia as recent changes that he has made to include the imposition of tariffs on steel and aluminium can have a negative impact on the Aussie. The prospect of a trade war could weigh heavy on the commodity currency and the Aussie could weaken further. Similarly a sequence of interest rate hikes are expected from the US Federal Reserve throughout 2018 and this could see the Australian dollar also weaken as funds move away from Australian and back to the higher yielding US dollar.
The other big driver for GBP AUD is what is happening with Brexit and in the short term I see the pound falling lower. Clients looking to sell Australian dollars may see a window of opportunity to convert although beyond that if the mood on Brexit looks better than the pound could see considerable gains against the Aussie.
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