The looming Supreme Court ruling on whether the Government need Parliamentary approval to trigger Article 50, and begin the process of the UK leaving the European Union is having a profound effect on Sterling exchange rates. At a time when the expectation would normally be for the Pound to strengthen against the Australian Dollar, in fact the opposite is occurring.
With positive UK data released for the UK exceeding expectations and little Australian economic data released last week, I expected the GBP/AUD exchange rate to rise in the Pounds favour, however this is not the case. The GBP/AUD rate started the week at 1.71 and at the time of writing is now sitting around the 1.66s.
The Supreme Court ruling is expected to reflect whether there will be a hard or soft Brexit. If the UK Government has to seek approval from Parliament then a soft Brexit seems more likely and the increased transparency should prove more attractive to investors. This result should lead to Pound Sterling strength and gains against the Australian Dollar. In contrast if the Supreme Court overturn the previous High Court ruling, Article 50 could be invoked sooner and is likely to be a more definite break from the EU, which could result in further losses for the Pound against the Australian Dollar.
In response to Sir Ivan Roger’s criticism Theresa May commented in her Sky News interview that her Government is not suffering from “muddled thinking”, and said she will set out her plans for Brexit over the coming weeks.
With expectations being thrown to the wind following 2016’s surprise vote results – such as the EU Referendum result and Donald Trump’s unexpected win in the US Presidential Elections – although the consensus is that the Supreme Court will uphold the High Court’s judgement, the reverse is not out of the question. This fact is causing volatility for the Pound and every piece of news is being scrutinised by the markets.
We are expecting more clarity on Theresa May’s Brexit strategy soon, with a possible speech in the next week. This news although with the Supreme Court result, which is expected mid-January, has the potential to cause significant movement either way in the GBP/AUD exchange rate.