The past 24 hours have been undecided in terms of the direction of the exchange rate between the Australian dollar and the Pound Sterling. Between 6AM UTC and 13:10 UTC, the AUD gained 0.81% against the GBP as the pair settled at 1.98661. However, the gains could not hold on for long as the Pound Sterling regained the lost ground by a 1.45% margin. This was after the Bank of England left the interest rates constant at 0.1%.
GBP could lose more ground against the Aussie
Nonetheless, the tone of the BoE for the rest of the day painted a gloomy picture of the UK economy. In particular, the policymaker warned Brits to brace for business closures and more job losses going forward. This is due to the devastation that is underway because of the coronavirus pandemic. Seemingly, the comments roiled the markets and left traders unable to find a clear path in terms of the GBP vs the Aussie.
Perhaps, the resilience of the AUD results from signs that the Reserve Bank of Australia’s efforts to stabilize the market are working. Indeed, the RBA kicked off a bond-buying program last week and the markets are responding. With more purchases slated for Friday and the coming week, it is possible that the GBP/AUD pair will establish a downward trend.
Risk-on conditions are beckoning
Another reason for the likelihood of the AUD firming up against the pound sterling is the return of risk-on conditions in the global forex markets. The US is taking the lead to assure markets that relevant stakeholders are willing to pull all the stops to ensure stability. Late Wednesday, the US Congress ratified a bill that intends to avail over $2 trillion in stimulus package. Essentially, the stimulus package intends to keep the US economy afloat as the coronavirus pandemic unfolds. As such, traders are likely to show some faith in risky assets, which should benefit the Aussie too.