The British pound is lower against the Australian dollar on Tuesday afternoon with investors increasingly convinced the Bank of England will lower interest rates in the United Kingdom on Thursday. At the same time markets appeared a little more sanguine about the coronavirus outbreak in China, helping ease the recent selling pressure on Asian currencies including the Aussie.
GBP/AUD was lower by 42 pips (-0.22%) to 1.9269 with a daily price range of 1.924 to 1.935 as of 2pm GMT. A short early lift in the currency pair quickly reversed to see the price fall below 1.93 and stay there.
Depending on the gauge you look at, markets now expect a just over 50% chance the Bank of England lowers interest rates on Thursday. That goes a long way to explain the slide in the British currency this week. At the end of last week it was thought that a surprisingly strong rebound in PMIs coupled with a strong labour market would be enough to deter some on-the-fence policymakers from voting to cut rates from 0.75% down to 0.50%. But stubborn expectations seen in SONIA futures markets have weighed on Sterling. (Note: SONIA Stands for ‘Sterling Overnight Index Average’).
Adding to the downside pressure were mounting fears that UK Prime Minister Boris Johnson’s plan to conclude trade talks by the end of 2020 is overly optimistic and could end in no trade deal at all. It was the EU’s Chief Negotiator Michel Barnier sounding the alarm bells at a press conference in Ireland with Irish PM Leo Varadkar. Barnier was simply reiterating the point understood by markets since Johnson reiterated his pledge after the election. That is namely that if no trade deal is achieved by December then the UK faces another so-called “cliff-edge” on its trading relationship with Europe.
Data showing Australian business confidence at a six-year low saw the Australian dollar add to recent losses, only to reverse and turn positive on the day as global sentiment toward the coronavirus improved. The National Australia Bank (NAB) Business Confidence dropped to -2, its lowest since 2013.
