A pessimistic report from the Confederation of British Industry reignited the ‘Brexit’ debate on Monday, pushing the Pound lower against the Australian Dollar.
Despite making some strong gains on the back of February’s unexpectedly improved Australian Unemployment Rate, the Australian Dollar to Pound Sterling (AUD/GBP) exchange rate returned to a downtrend ahead of the weekend. Largely this was due to the recovery of the US Dollar (USD), which weighed heavily on the commodity-correlated ‘Aussie’ (AUD) as market confidence faltered.
The outlook of Pound Sterling (GBP) was a little more mixed, meanwhile, as investors grappled with the details of Chancellor of the Exchequer George Osborne’s latest UK budget. A number of economists dismissed the Chancellor’s ability to meet his target of achieving a surplus before the end of the current parliament in 2020, consequently weakening the outlook of the domestic economy.
During Monday’s European session the Confederation of British Industry released a report highlighting the potential impact that a ‘Brexit’ could have on the UK. The CBI predicts that up to 950,000 jobs could be lost along with 100 billion Pounds of economic output, a prospect that saw the Pound fall quickly out of favour with traders.
Bucking the general trend, the Shanghai Composite Index rallied to reach its highest level since January on the news of the imminent resumption of cheap loans to stock brokerages. A move intended to encourage further investment in Chinese companies, this announcement bolstered confidence and helped to push up the Australian Dollar alongside local stocks on the prospect of cheap money.
Later today words from Reserve Bank of Australia (RBA) Governor Glenn Stevens could boost the antipodean currency further against rivals, assuming the policymaker maintains his previously relaxed attitude with regards to the domestic economy. However, if Stevens reiterates the more dovish tone of March’s meeting minutes the ‘Aussie’ is likely to retreat as the potential for an interest rate cut is seen to grow.
While ‘Brexit’ concerns are unlikely to particularly diminish in the near future the Pound could return to stronger form if the UK’s latest Consumer Price Index report proves more positive. Pundits are expecting to see a modest uptick in baseline inflation from 0.3% to 0.4% in February, which would be a stronger sign for the UK economy. Should inflationary pressure weaken, however, Sterling is expected to soften substantially across the board.
At the time of writing, the Australian Dollar to Pound Sterling (AUD/GBP) exchange rate was trending higher at 0.5265, while the Pound Sterling to Australian Dollar (GBP/AUD) pairing was slumped around 1.8989.
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