GBP/AUD Jumps Over 0.40% to Conclude a Positive Week

GBP/AUD is surging on Friday, finally departing from December lows. The pair is about to end the week with a decent gain after a dramatic post-election tumble. Currently, one British pound buys 1.8785 Australian dollars, up 0.44% as of 9:00 AM UTC.

So far, no relevant economic releases are planned for today, as both the UK and Australian markets just returned from celebrating the Christmas and Boxing Day. However, the sterling has gone wild as investors shifted their focus from no-deal Brexit fears to optimism around the trade deal between the US and China.

The pair has experienced one of the biggest weekly drops in years on no-deal Brexit worries, after UK Prime Minister Boris Johnson said he would make it illegal for the government to extend the withdrawal transition period beyond December 2020. The parliament had already passed Johnson’s amended Withdrawal Agreement Bill (WAB) last Friday, so the UK and the European bloc have to reach a trade deal within 11 months after the official Brexit occurs by January 31.

Nevertheless, the pound’s current bullish attempt might also be explained by technical analysis reasons. Investors might have overreacted to the no-deal Brexit fears, so the sterling is now rebounding to test regional resistance levels.

Earlier today, British think tank Resolution Foundation said that real wages are expected to surge early next year to highest levels since before the financial crisis in 2008. However, it is not clear whether the turnaround in salaries will be sustainable since the economic growth is slowing down and there are early signs of weakening employment figures. The organization said:

“The big question for 2020 is whether (the labour market) can continue its strong run, or whether it will reach a tipping point and reconnect with weaker growth performance.”

Both the pound and the Aussie are welcoming news that Beijing and Washington are getting close to signing the phase one trade deal. On Tuesday, US President Donald Trump said that he and Chinese President Xi Jinping would have a signing ceremony. The interim agreement will put an end to the 17-month trade war.

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