AUD/GBP Exchange Rate Surged after UK Voted for Brexit
Despite a sharp rise in safe-haven demand the AUD/GBP exchange rate trended sharply higher ahead of the weekend, thanks to the UK’s surprise decision to leave the EU.
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Surprise Brexit Vote Benefitted AUD/GBP Exchange Rate
Throughout the week markets had taken a generally optimistic view of the UK’s EU referendum, particularly as opinion polls pointed consistently towards a ‘Remain’ camp victory. As a result the Pound (GBP) had been on a relatively strong footing against rivals, with investors confident that the odds of a Brexit were limited. However, this ultimately proved to be misguided, with the ‘Leave’ campaign receiving unexpectedly strong support and pushing to a 51.9% win. This naturally shocked the market, with the sharp decline of the Pound allowing the Australian Dollar to Pound Sterling (AUD/GBP) exchange rate to jump to a nineteen-month best of 0.5546.
As researchers at Rabobank noted:
‘Although the ‘Remain’ camp received strong backing from the business sector and international organisations (and more generally had run a campaign targeted at the homo rationalis), the ‘Leave’ camp, which put a strong emphasis on self-control and sentiments that struck a chord with disgruntled voters, ultimately prevailed. A new chapter in UK economic history is about to commence and financial markets will watch any further political gyrations with elevated scrutiny.’
Pound (GBP) Sentiment Muted Despite Pledge of BoE Action
Some of the initial panic of investors wore off as Friday’s European session commenced, however, as the shock of the result began to properly sink in. There was some reassurance from Bank of England (BoE) Governor Mark Carney, who attempted to calm markets with a pledge to provide 250 billion Pounds of additional liquidity. With the BoE poised to take further emergency measures as necessary to stabilise the domestic economy the losses of the Pound eased somewhat.
Nevertheless, as Prime Minister David Cameron resigned soon after the final announcement of the referendum result uncertainty remained. Guidance was generally lacking as to the future of the UK’s relationship with the EU, and the world at large, giving investors little reason to return to the Pound at this juncture.
Risk appetite was severely dented as a result of the UK’s decision, putting pressure on the Australian Dollar (AUD) as the appeal of the commodity-correlated currency generally declined. Even so, the AUD/GBP exchange rate remained on bullish form going into the weekend, trending about 4.70% higher.
AUD/GBP Exchange Rate Forecast: Brexit Fallout to Overshadow Pound Outlook
Markets have been inclined to lower the odds of an imminent Federal Reserve interest rate hike as a result of the negative impact that a Brexit is expected to have on the global economy. This could offer some reassurance to the ‘Aussie’, although risk aversion is likely to remain a significant drag on the antipodean currency in the near future.
Demand for the Pound is not expected to pick up significantly for some time to come, even if the currency’s softness encourages a round of consolidation trading. The continuing fallout of the historic referendum vote will dwarf domestic data in the coming week, and likely longer, with Sterling set to remain out of favour for some time.