Uncertainty over the UK’s future within the European Union has seen the Australian Dollar to Pound Sterling (AUD/GBP) exchange rate making strong gains.
The strength of Pound Sterling (GBP) was compromised at the beginning of the week after Prime Minister David Cameron secured agreement on reforms to the UK’s position within the EU and triggered the ‘Brexit’ referendum campaigns to commence in earnest. As London Mayor Boris Johnson publically pledged his support to the ‘Leave’ camp the odds of a potential ‘Brexit’ were seen to have increased, given that a recent poll ranked Johnson second only to Cameron in terms of voter influence. Ahead of the June vote the increased atmosphere of uncertainty is expected to drag on the UK economy, a prospect that has greatly reduced the appeal of the Pound.
Meanwhile, the Australian Dollar (AUD) was shored up by the latest resurgence in global stock markets and base metal prices. Risk appetite was further fuelled by the news that the US Manufacturing PMI had fallen further than forecast in February, suggesting that the Fed will be in no particular hurry to raise interest rates for the time being.
Commentary from Bank of England (BoE) Governor Mark Carney has failed to particularly bolster the Pound, as investors remain assured that domestic interest rates will remain at their current level for some months to come. The policymaker’s failure to take a more hawkish tone kept the Australian Dollar to Pound Sterling (AUD/GBP) exchange rate on an uptrend, although Sterling’s downward trajectory has been a little more limited after Monday’s sharp decline.
Despite mining company BHP Billiton reporting a loss of 4 billion Pounds in the second half of 2015 this has failed to especially dent the commodity-correlated ‘Aussie’, in spite of a warning that commodity prices are expected to remain weaker for longer. While markets have failed to hold onto their more bullish form the Australian Dollar has nevertheless continued to make gains against rivals.
Wednesday’s Australian Wage Cost Index could extend the antipodean currency’s gains further, with steady wage growth likely to discourage the Reserve Bank of Australia (RBA) from considering an interest rate cut at this juncture. As US Consumer Confidence is also expected to dip, the AUD/GBP exchange rate is likely to remain on stronger form as the week continues.
While the BBA Loans for House Purchase report is forecast to show an uptick in lending to house buyers this is not expected to offer the Pound a particularly strong rallying point. However, if investors come to the conclusion that the recent sell-off was overdone or are encouraged to engage in profit-taking Sterling may recover somewhat.
At the time of writing, the Australian Dollar to Pound Sterling (AUD/GBP) exchange rate was making gains around 0.5138, while the Pound Sterling to Australian Dollar (GBP/AUD) pairing was slumped in the region of 1.9463.
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