GBP AUD Slumps After UK Cabinet Resignations 

The GBP AUD exchange rate was sharply lower by -0.67% after the resignation of two senior cabinet members from Boris Johnson’s government. That puts the Prime Minister’s future in doubt again, adding pressure to the pound sterling. 

The GBP to AUD rate trades at 1.17460 and the failure to top the 1.7800 resistance for the pound in recent months risked a further sell-off. 

Boris Johnson reeling from double resignation 

British Prime Minister Boris Johnson saw his fortunes go from bad to worse with the resignation of two senior Cabinet members. A further wave of resignations hit Johnson late Wednesday. 

Rishi Sunak and Said Javid have both quit, acknowledging the government could not continue on the current path. The public expects the government to conduct itself in a proper, competent and serious manner. Sunak added that he believed these standards were worth fighting for and this is why he resigned.  

The move by both cabinet members puts a trap door under the Prime Minister. Johnson promoted an MP this year despite previous misconduct allegations. 

For the pound sterling that adds some uncertainty on the future of the PM and the country’s monetary path. There is now talk of Mr Johnson resigning, although that may be unlikely. The other option is that MPs go against normal rules and hold another confidence vote. Losing a confidence vote would result in a leadership contest amongst other party members, but Mr Johnson would be removed. The Prime Minister was said to be safe for a year, but we could see letters sent again to Sir Graham Brady, who will announce when they reach the 54 trigger number. 

Economists divided on potential for an Aussie housing slump 

Economists agree that house prices peaked in Australia, but are unaligned on the depth of a potential slide in prices.  

Australia’s property market is valued at A$10 trillion after record surges during the pandemic. With the current rise in inflation and the subsequent hike in interest rates, it looks possible that a correction is coming. Like the UK, Australia’s economy is led by consumption, with 60% of its growth dependent on consumers. 

While some predict a recession, others hope that the housing market and services spending can prop up the country. Unemployment is at a 50-year low in the country, while household savings are also above levels from the last downturn in housing.  

The Sydney housing market dropped by 0.9% since January, while the country suffered its first decline since 2020. Again, that 2020 low was met by huge central bank intervention. 

Savings levels still buoy Australians, but how many quarters can those remain high when inflation and higher mortgage payments start biting further into wages? 

Goldman Sachs currently has one of the more aggressive predictions for rates, with another 50-basis-point hike expected across the next three meetings with a move to 3.1% interest rates, which matches the financial market expectations. 

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