• Pound (GBP) supported by additional fiscal support after Chancellor announced £30 billion spending plan
  • Brexit talks see little progress
  • Signs of recovery in China’s economy boosts Chinese proxy the Australian Dollar (AUD)
  • Investors weigh up Melbourne lockdown

The Pound Australian Dollar (GBP/AUD) exchange rate settled on Wednesday just +0.04% higher at 1.8061. At 09:15 UTC, GBP/AUD trades +0.1% at 1.8075, extending gains for a third consecutive day.

The Pound is advancing across the board following new fiscal stimulus plans, revealed yesterday by the Chancellor Rishi Sunak in his Summer Statement. The £30 billion package aims to guide the UK economy though its deepest downturn in 300 years by way of tax cuts aimed at home buyers and the leisure and hospitality sector. He also announced a job retention scheme to get people back to work after the furlough programme.

The solid fiscal stimulus support added to the Bank of England’s monetary policy support means that the coronavirus impact should be reduced. That said, Rishi Sunak is very aware of the uncertain nature of the recovery and refused to provide clear projections of the shape of the recovery.

Brexit talks continue, however little progress is being made which is capping gains in the Pound. Angela Merkel warned EU countries that they must prepare for a no deal Brexit.

The Australian Dollar extended losses versus the Pound. On the one hand, encouraging Chinese data is boosting the Aussie, however Melbourne back under lockdown is dragging on the currency.

A spike in coronavirus numbers in the state of Victoria has seen Melbourne go back into lockdown for 6 weeks. Melbourne is a key economic hub for Australia and a second lockdown there will have an impact on economic growth. Even so the consensus amongst economists is that Australian GDP will contract -4% this year, compared to -8.5% decline expected in the UK.

On the flip side, signs of economic recovery in China are boosting the China proxy, the Australian Dollar. Chinese factory gate inflation declined -3% year on year in May, up from -3.7% decline in April. However, int the manufacturing sector, inflation increased +0.4%, up from a -0.4% decline in April. This is boosting optimism that the sector has turned a corner and the recovery is on track.