Australian Dollar to Pound Sterling (AUD/GBP) Exchange Rate Forecast to Advance as UK General Election Hinders Investor Confidence

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The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate rallied by over 0.5% during Wednesday’s European session.

After the Reserve Bank of Australia (RBA) opted to cut the benchmark interest rate to a record-low 2.0%, the ‘Aussie’ (AUD) advanced versus the majority of its most traded currency competitors. The appreciation continued during Wednesday’s European session despite mixed results from domestic data.

The Pound, meanwhile, softened versus the majority of its most traded currency peers despite services growth accelerating to an 8-month high. The losses can be attributed to mounting political uncertainty as we draw ever closer to the conclusion of the general election.

The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate is currently trending in the region of 0.5253.

Australian Dollar (AUD) Exchange Rate Rallies on RBA Cut

Ordinarily, when a central bank cuts the lending rate the domestic currency would dive versus its major peers. However, the RBA’s most recent cut was met with an ‘Aussie’ rally as traders predicted that this would end the easing bias. The RBA will be particularly frustrated with the positive response given that they have been complaining about the overvalued South Pacific asset and its detrimental effect on economic growth.

‘Although there was nothing in the communiqué to suggest that the RBA was finished with its easing program, the market concluded that this would be the last cut this year,’ said BK Asset Management managing director of foreign exchange strategy Boris Schlossberg. ‘The Australian cash futures curve stood at 2 per cent all the way out to October of 2015, indicating the benchmark rate will not be lowered any further.’

Such was the response to the rate cut that even mixed domestic data results, which err towards negativity, had minimal impact. New Home Sales climbed by 4.4% on the month in March, a marked improvement on the previous growth of 1.1%. March’s Retail Sales showed only 0.3% growth on the month, however, failing to meet with the median market forecast of 0.4%. Retail Sales ex Inflation saw a quarterly gain of 0.7% in the first quarter, but missed the market consensus of 0.8% growth.

The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate dropped to a low of 1.4015.

Pound Sterling (GBP) Exchange Rate Softens amid Election Jitters

With opinion polls giving no clear indication of a majority lead for any of the major political parties, traders have shown increased reluctance to invest in the British asset. Should a new coalition form, the potential for a massive policy overhaul has hampered investor confidence significantly. With the results due early on Friday morning (GMT), the Pound is unlikely to sustain any significant gains until the election conclusion.

Compounding the Sterling downtrend was disappointing shop price data. The BRC Shop Price Index was expected to soften by -1.7%, but the actual result declined by -1.9% in April.

Helen Dickinson, director general at the BRC, said: ‘The falling prices of non-food goods slowed down very slightly, whilst offering up great deals on clothing, electricals, books, stationery, home entertainment, DIY, gardening and hardware. April saw the 24th consecutive month of falling shop prices and the 25th consecutive month of falling non-food prices. These trends help to illustrate how retail has helped the consumer keep the cost of living down in recent years.’

The UK Services PMI, which accounts for a large portion of British Gross Domestic Product, advanced to 59.5 in April, eclipsing the market consensus of 58.5. Chris Williamson, Chief Economist at Markit, said; ‘Fears of the economy slumping amid election jitters are allayed as an upturn in service sector activity has helped offset sharp slowdowns in both manufacturing and construction.’

Australian Dollar to Pound Sterling (AUD/GBP) Exchange Rate Forecast to Hold Gains

Given the lack of domestic data to curb the trend, and with election jitters weighing on demand for the British asset, the Australian Dollar to Pound Sterling (AUD/GBP) exchange rate is likely to hold gains for the remainder of Wednesday’s European session.

Thursday’s Australasian session ought to see heightened AUD/GBP volatility with several influential Australian economic data publications due, including Employment Change and Unemployment Rate.

The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate climbed to a high of 0.7128.

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