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The British pound (GBP) is lower against the Australian dollar (AUD) on Tuesday.

  • Better China import/export data bolsters the Aussie
  • China tensions switch from Australia to the UK after Huawei ban
  • UK May GDP misses expectations by a long shot
  • One-day record deaths in Florida – a bad omen for the pandemic

GBP/AUD was down by 71 pips (-0.39%) to 1.8894 as of 4pm GMT. The exchange rate has fallen -0.84% this week.

The currency pair tried to nudge above 0.81 in early trading but quickly slid to below 1.80 before finding a base for the day. Yesterday it dropped -0.40%.

GBP: UK GDP misses

Sterling has had better starts to the week, notching up a second daily loss versus the Australian dollar after having touched a 3-week on Friday.

May UK GDP growth was unexpectedly soft with a reading of 1.8% when expectations were for 5.0%. It shows an economy that has barely started recovering since the collapse in April.

The weak UK economy, coupled with dovish rhetoric from Bank of England policy makers (Governor Bailey yesterday saying he is very worried about jobs) is pulling Sterling lower.

The drop in the pound matched movements across bond markets where UK 2-year gilt yields dropped below the equivalent Japanese JGBs for the first time ever. This has been referred to as ‘Japanification’ where interest rates stay low permanently, which has happened in Japan.

AUD: Record deaths in Florida

For today it was not Australia in the spotlight for deteriorating relations with China. The British government finally confirmed it will stop using Huawei equipment in its 5G network because of the difficulty navigating US sanctions.

The decision will pile on top of already frayed UK tensions with China. China has already threatened a response after Prime Minister Boris Johnson said he would offer residency to Hong Kong citizens in response to the new Chinese security law for the city.

On Tuesday it was a new one-day record for coronavirus deaths in Florida. It confirms the fear that rising cases in the United States will soon be matched by rising deaths when some of those who have been hospitalised do not recover.