Heading into the last day of the week, the Pound to Australian dollar (GBP/AUD) exchange rate has been on the decline. However, as the Australian dollar remains sensitive to risk and trade sentiment, it once again finds itself under pressure. For weeks, if not months the Aussie dollar has seen a heavy weight pressed upon it as the coronavirus spreads throughout the world. Since opening this week at the level of 1.9701, the GBP/AUD exchange rate has been trending lower. Yesterday saw the exchange rate even touch on a half-month low of 1.9300, which was four cents lower than the week’s opening levels. With little in the way of important economic releases for a swing in momentum for either currency, the two looks to trade at similar levels heading into the weekend.
Pound Exchange Rates Rebound as Bank of England (BoE) Speculation Calms
The Pound saw significant losses over the past week. Hard Brexit fears returned, and Bank of England (BoE) interest rate cut bets have soared. Brexit fears soared after EU-UK Brexit negotiations opened up for talks at the start of this week. Both the EU and UK butted heads as they both set out their demands, both of which contradicted each other. The EU requires the UK to follow EU rules post-Brexit in order to obtain a free trade deal. On the other hand, the UK is gunning for complete control of their rules and politics in the post-Brexit era. Something that has heightened tensions between the two and has investors running scared.
Meanwhile, rising BoE interest rate cut bets have been mainly due to the outbreak of coronavirus. There are concerns that the pandemic spread of the virus will have a big negative impact on global economic activity and growth. More particularly for GBP, the currency runs on significant investment from foreign investors, but with rising fears about the coronavirus, the investors are fleeing the currency as risk sentiment hits the floor.
Bets of BoE rate cuts are still high, but for now, the speculation of an emergency rate cut has softened. This has boosted the Pound outlook slightly and helped the GBP to rebound today.
AUD to remain weak on coronavirus outlook
The Australian dollar is a currency which is heavily linked to market risk sentiment, as well as the performance of the global trade as well as the Chinese economic sentiment. But as Federal Reserve rate cut bets rose, perceived monetary policy divergence between the Fed and Reserve Bank of Australia (RBA) lessened. This helped the Australian Dollar to rebound strongly from recent lows this week. However, the Aussie outlook looks uncertain as the virus continues to cloud the economic forecast.
Looking ahead into next week, the main factors to influence the pairing are the going to be any coronavirus developments as well as Brexit unfolding’s with economic data also waiting in the wings.
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