The GBP/AUD currency pair plunged to a 2 1/2-week low of 1.8799 on Monday, as the Australian Dollar remained firm following the latest monetary policy decision by the People’s Bank of China.
On Monday, the PBoC left its benchmark one-year and five-year Loan Prime Rates unchanged at 3.00% and 3.50%, respectively. Given the strong trade linkages between China and Australia, the decision is providing a supportive backdrop for the Australian Dollar, which is often viewed as sensitive to developments in the Chinese economy.
Domestic monetary policy is also lending support to the Australian Dollar. After keeping the cash rate unchanged this month, Reserve Bank of Australia Governor Michele Bullock reiterated that inflation had remained elevated and cautioned that additional rate hikes could not be entirely dismissed.
Meanwhile, the British Pound is being pressured by a new wave of political uncertainty. Reports indicate that UK Prime Minister Keir Starmer could announce his resignation as early as Monday, which could open the door for former Manchester Mayor Andy Burnham to take over the role.
This potential leadership change adds to the sense of instability around UK politics and is expected to continue undermining confidence in Sterling.
In addition to political factors, reduced market bets on further rate hikes by the Bank of England are also limiting upside in the British currency.
The GBP/AUD currency pair was last down 0.10% on the day to trade at 1.8851.
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