Whether you are wanting to time a money transfer to get the best exchange rate, or get a feel for the direction of the GBP to AUD exchange rate, we summarise the factors affecting the GBP to AUD exchange rate to help you.
The British Pound (GBP) is an incredibly popular currency, being the fourth most traded currency in the foreign exchange market, after the USD, the Euro and the Japanese Yen. Additionally, given the strong historical and cultural ties with Australia, the United Kingdom (UK) remains one of the top destinations for Australian travellers (and vice versa), with nearly a million Australians visiting the UK every year, and nearly 700,000 British nationals visiting Australia.
What gives the British Pound its value?
The GBP is used as a reserve currency around the world. This means that the GBP is held by other countries in significant amounts as part of their foreign exchange reserves, which is then used in international transactions, international investments and other critical transactions in the global economy.
The UK is also an important financial hub in the global economy, with many multinational financial corporations having headquarters in London. This financial activity gives investors confidence in the strength of the currency as there will always be demand for the British Pound.
What can affect the value of the British Pound?
UK Monetary Policy
Monetary policy is generally described as the way the central bank of a country controls the supply of money to businesses and people, in order to manage economic factors such as growth and inflation.
Countries usually use interest rates to control monetary policy – as interest rates affect people’s behaviours around borrowing and saving. Generally speaking, the lower the interest, the more likely people will borrow to spend money as the cost of credit is cheaper.
Monetary policy in the United Kingdom is controlled by the Bank of England, which controls the GBP by affecting the amount of money in circulation. One of the core mandates of the Bank of England is ensuring “… low inflation and confidence in the currency”.
UK Market Conditions
The UK economy is both highly developed and market oriented. Statistically, it is the sixth largest economy in the world when based on Gross Domestic Product (GDP), and is the second largest economy in the European Union.
Although the UK economy has bounced back after the global financial crisis in 2008, business confidence in the economy remains on edge due to Brexit and the potential impacts that stem from the UK leaving the European Union. This uncertainty has the potential to hold back business investment.
What does this mean for the AUD to GBP exchange rate?
Now that we appreciate the influences on the value of the British pound, the factors impacting the AUD to GBP exchange rate will also include those factors influencing the value of the Australian dollar.
As a result, the AUD to GBP exchange rate is also dependent on factors specific to Australia’s economy. We have covered this in more detail in our article Factors Affecting Movements in the Australian dollar, however the principle factors that impact the Australian dollar’s value are the strength of the mining and agricultural sectors, Australia’s monetary policy, and the strength of Asia’s economy (which indirectly boosts the Australian economy).
Despite the uncertainty around Brexit, the AUD to GBP exchange rate appears to be favouring the GBP at the moment. According to CurrencyFair, as of February 2018, the rate is approximately 0.56 GBP to 1 AUD. The graph below from OFX shows the historical rate over the past five years:
The AUD has seen a gradual increase in strength over the last decade, from lows of around 0.35 GBP to 1 AUD in the early to mid 2000’s, to the current levels of around 0.56 GBP to AUD. As Brexit negotiations continue between the UK and the European Union, it is likely that the exchange rate will see more volatility as investor confidence in the GBP fluctuates based on the outcome of the negotiations on the British economy.
It is important to remember that investing in forex is still a volatile investment as exchange rates are dependent not only on the country whose currency you are investing in, but also domestic conditions at home in Australia.
If you want to get the best GBP to AUD exchange rate, we evaluated a number of money transfer companies to see who offered the best deal on international money transfers. CurrencyFair was found to offer the best exchange rate when transferring British pounds to Australian dollars.