GBP AUD Weaker as Downing Street Drama Weighs

GBP AUD Presses Recent Highs on GDP, Risk Woes

The GBP AUD exchange rate was -0.10% lower on Wednesday after the Downing Street saga weighed on the pound sterling. Business sentiment was weaker in Australia, but investors have ignored that for now. Traders added support to the Aussie dollar as political uncertainty grips the UK.

The GBP to AUD rate was trading at 1.8842 on the latest developments.

Truss adds fuel to the Aussie China fire

The UK’s Foreign Secretary has said that China’s “economic coercion” of Australia was a “wake-up call” to other countries.

China introduced tariffs and other trade restrictions against the country on barley, wine, beef, seafood and coal exports when the relationship between the two countries soured in 2020.

Liz Truss said: “The situation with Australia – the economic coercion we saw – was one of the wake-up calls as to exactly what China was doing and the way it was using its economic might to try to exert control over other countries”.

She added: “I think there was a belief in the past that as China got wealthier, it was headed on a path towards becoming a freer, more democratic society. The reality is that hasn’t happened.

“In the late 90s, the Chinese economy was a 10th the size of the United States economy. We’re now in a situation with a China with a much bigger economy, much more able to coerce other nations. And as I’ve said, we’ve looked to Australia as we formulate some of our policies around how we deal with these issues.”

The UK is busy dealing with the potential demise of Boris Johnson’s Prime Ministerial tenure as the police have now launched an investigation into the country’s leader. Sue Gray is still expected to release her own independent inquiry into the Downing Street parties but that will take a back seat to the first police investigation into a sitting Prime Minster in a century.

Australia business sentiment drops in December

The numbers come a day after the latest Australian inflation numbers came in above market expectations. There were calls for a faster rate hike path from the Reserve Bank of Australia, but inflation is well behind the US at 7% and the UK and Europe above 5%. Aussie inflation is 3.5% but maybe we are now becoming immune to higher levels after years of targeted 2% levels.

The Australian Financial Review said that the bank should show, “patience for now and then strike hard”. It is not always that easy to take such moves and we should look back to the 1970s for how patience turned out.

Tonight will see the latest meeting of the Federal Reserve and that has the potential to rock markets. The Fed has is expected to wait until March, but at 7% inflation, it is the highest in 40 years when Ronald Reagan was the President. If the US central banks starts moving ahead of schedule, it may prompt others to do the same.

Powered by Lumon