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The pound has slipped into a downtrend against the Australian dollar.
The pound to Australian dollar exchange rate (GBP/AUD) is finding some near-term support at the big 2.0 level at the start of the new week but looks vulnerable to finally breaking below this important psychological marker.
A look at the daily chart shows GBP/AUD last week broke below the 200-day exponential moving average (EMA) which is significant as it signals an important trend change.
Our Week Ahead Forecast model uses the 200-day EMA as a marker that signals whether an exchange rate pair is in a downtrend or uptrend: above it and we're trending higher, below and we're trending lower.
The chart shows that dips below the 200-day EMA haven't been entirely uncommon in 2025, but they have been relatively short-lived and proven to be 'false' signals.
Last week's dip was more decisive and at this point of time we really aren't seeing any sign of those ferocious rebounds that followed previous false flags, so a steady trending further below 2.0 could be on the cards into year-end.
For the coming week, though, the 2.0% could offer some support, particularly as last week's drop looks a bit excessive.
GBP/AUD is trading well below its nine-day EMA, a near-term momentum signal that the exchange rate tends to cling to.
When it diverges meaningfully, a snap-back tends to follow. This means we are on the lookout for a return towards the vicinity of 2.0200 in the coming days ahead of a potential resumption of the decline below 2.0.
The Australian dollar has benefited handsomely from the trade war detente announced by China and the U.S. last week, confirming its status as a winner when the global mood music is good.
If investors dance to a merry tune into year-end, it's hard not to see AUD extending its winning ways.
By contrast, the pound has a couple of high-stakes hurdles to cross, none more so than the November 26 budget.
We know tax rises are coming and this is keeping households and businesses nervous which is likely ensuring the economy is operating well below its potential.
Add to this a potential interest rate cut before year-end, and we have a very sorry-looking pound on our hands.
However, a lot of bad news is in the price, as is that rate cut, so there is certainly scope for the pound to rebound.
That being said, it's hard to see any long-lasting strength, and we would anticipate such episodes of GBP/AUD strength to be sold into, in keeping with the suspicion we are now in a downtrend.
"Our cautious view on sterling was justified in the third quarter. Looking ahead, the UK Budget on 26 November is a key event risk and markets are nervous about both too little fiscal consolidation and higher Gilt issuance, and too much fiscal consolidation, which would allow the BoE to cut rates at a faster pace. Our view is that the rate path should matter more," says Kiran Kowshik, Global FX Strategist at Lombard Odier.