The British pound was flat against the Australian dollar on Wednesday.
- Oxford University to release good results from COVID-19 trial – ITV
- UK yield curve widens after UK inflation beats
- Goldman Sachs tops earnings estimates on strong trading revenues
GBP/AUD was unchanged (0.00%) at 1.7987 as of 4pm GMT. This week the exchange rate is lower by -0.96%.
The currency pair gyrated in a 40-pip range with 1.798 as the midpoint. Yesterday the exchange rate fell -0.53%.
GBP: UK yield curve shifts up
There was a let-up in the Sterling weakness that characterised the first two days of the week but the Aussie dollar was also firmer thanks to a rebound in global risk sentiment. AUD/USD topped 0.70 to reach its highest in a month, helped by weakness in the greenback.
An uptick in UK inflation helped support the rebound in the pound while strong earnings from Goldman Sachs and new vaccine developments (today’s in Oxford, UK) helped lift wider sentiment.
The June UK CPI reading of 0.6% was better than the 0.4% expected, but still miles from the 2% target set by the Bank of England. The higher inflation pushed up longer dated yields, while short term yields are being held down by Bank of England bond purchases. Yields fall as prices rise.
Notably the UK gilt yield curve widened to its steepest since the Bank of England restarted asset purchases in March. The yield curve represents the difference between long and short term government borrowing costs. In general, a steeper yield curve means investors are picturing higher interest rates and a better growth outlook.
AUD: Aussie bolstered by COVID vaccine hopes
Goldman Sachs earnings jumped way beyond expectations thanks to the highest trading revenues in nearly a decade. The sharp sell-off in equity markets in March followed the giant rally since has seen a huge jump in investment and trading activity.
Bank stocks are considered cyclical because they tend to do well when the economy is doing well, so the better Goldman earnings are being taken as good news for the US and thus the global economy.
The vaccine for Covid-19 being developed at Oxford University that has been backed by AstraZeneca is set to report good trial results according to a report today. Added to the Moderna and Pfizer trial results, the chances of a vaccine coming soon are improving.
