The British pound is higher against the Australian dollar on Friday in a big short-covering rally that has taken the pound higher against every major currency. The Bank of England rate cut in has helped sentiment towards sterling while the Reserve Bank of Australia began its program of quantitative easing for the first time.
GBP/AUD was up by 119 pips (+0.60%) to 2.0123 with a daily range of 1.9672 to 2.0304 as of 5pm GMT. The currency pair rallied back above 2.0 which has been a mid-point in a volatile choppy week for the exchange rate. The net result was a +1.41% gain for the week so far.
British pound in big short covering rally
It was getting very rough for the pound this week although losses against the Aussie were more limited because of the matching downside pressure on the Aussie. Sterling has staged a major recovery at the end of the week thanks to another emergency rate cut from the Bank of England which took interest rates to a record low, alongside a new quantitative easing program.
The BOE actions followed new Chancellor Rishi Suank’s expanded £330bn fiscal response to the like coronavirus-induced downturn that included government-backed loans and mortgage relief for homeowners.
Despite all the new policies, fears of a long and destabilising UK recession remain. The UK still has the unresolved issue of Brexit – which was highlighted on a personal level when the EU’s Brexit trade negotiation Michel Barnier announced he had COVID-19 and was self-isolating.
Australian dollar matches improved risk sentiment
The Aussie has been a beneficiary of an improvement in risk sentiment on Friday, rising against the dollar from its lowest level since 2003 but it was no match for the British pound which was rebounding from a 35-year low to the dollar.
Rising stock markets in response to the increasing monetary and fiscal stimulus across the globe in response to the coronavirus pandemic should correlate with a stronger Aussie. Like the pound, the Aussie has benefitted since its central bank began buying government debt. The RBA bought $5 billion AUD of government bonds this week.