• Pound (GBP) trades lower as BoE hints towards negative interest rates and Brexit talks resume
  • Contraction in UK construction sector slows in June
  • Australian Dollar (AUD) supported by hopes of a strong Chinese recovery ad ahead of RBA announcement
  • Pound Australian Dollar exchange rate extends losses for a fourth straight session

The Pound Australian Dollar exchange rate traded more or less flat across the previous week, settling on Friday at 1.7985. At 08:15 UTC, GBP/AUD trades -0.4% at 1.7925.

The Pound is trading on the back foot versus most the majors after a report over the weekend that Bank of England Governor, Andrew Bailey, was preparing the UK financial sector for negative interest rates.

Check real time GBP to AUD exchange rate

Andrew Bailey has written to lenders warning them of the challenges that negative interest rates would bring. This is being viewed by Pound investors as the central bank taking a step closer the unprecedented move of charging commercial lenders to store reserves. As higher interest rates boost demand for Sterling, negative rates have the reverse effect.

Whilst negative rate fears dragged on the Pound, domestic data was more supportive. UK construction PMI showed that the sector urged into expansion territory in June as construction sites reopened across the country.

The Australian Dollar is being supported by the broad risk on mood in the market. The prospect of a Chinese economic bounce back is overshadowing fears of rising coronavirus cases in the US. This optimism pushed Chinese stocks to 5-year highs in a surge of buying activity. The Australian Dollar is considered a proxy for China. Optimism surrounding the Chinese economy often results in a move higher in the Aussie Dollar

Investors will now look ahead to the Reserve Bank of Australia’s monetary policy announcement. Analysts are not expecting the central bank to move on interest rates which remain at 0.25%, a record low level. However, with the number of coronavirus cases growing in Victoria and Melbourne, Australia’s second largest city once again under lockdown, the RBA is expected to strengthen its commitment to providing more support if it is needed.

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