gbp-aud-currency-exchange
  • UK GDP -20.4% vs -18.2% forecast
  • Brexit adds pressure to Pound (GBP)
  • Australian Dollar (AUD) advances as risk resets
  • At 08:15 UTC, Pound to Australian Dollar (GBP/AUD) is trading -0.4% at 1.8310

A weaker than forecast UK GDP, in addition to an improved mood in the market is sending the Pound Australian Dollar exchange rate lower on Friday.

At 08:15 UTC, GBP/AUD is trading -0.4% at 1.8310. Yet despite today’s decline the pair is on track for gains of 0.7% across the week. This would mark the first positive week for the pair in five weeks.

The UK economy shrunk a worse than expected -20.4% in April, the deepest economic contraction for centuries and below the -18.2% contraction that economist had pencilled in. All sectors saw activity plunge with the service sector and the construction sector experiencing the worse decline in activity. The April data reflects the first full month of lock down in the UK and comes following -5.8% contraction in March. This means that between February – April the UK economy shrank by a quarter.

The data is expected to increase the pressure on the UK government to ease lockdown restrictions more quickly. However, with the UK also the country with the highest number of coronavirus deaths, Boris Johnson will find himself in a difficult position.

In addition to GDP, Brexit continues to dampen demand for sterling. Whilst the two sides have agreed to intensify talks, London will inform Brussels that it is unwilling to extend the transition period beyond the end of the year. If negotiations fail to end in an agreement, the UK will adopt unfavourable World Trade Organisation rules at the start of the new year.

Risk off trading sent the Australian Dollar plunging in the previous session. A cautious sounding Fed in addition to fears over a second wave of coronavirus infections in the US sent risk sentiment and the risk sensitive Aussie Dollar tanking lower.

Today, risk assets are showing signs of stabilising as investors return their focus to the philosophy that the worst is in the past and reopening of economies will boost global growth.