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One of Australia's biggest banks thinks the Australian Dollar can recover against the Pound as Trump will hit the UK with tariffs over its VAT charges.
Commonwealth Bank of Australia says the Australian Dollar is "weaker than we had expected at this point" but that tide should start to go out again for European currencies which have seen a strong first quarter to 2025.
"We expect optimism around European defence spending to moderate, supporting AUD/GBP," says Kristina Clifton, Senior Currency Strategist at Commonwealth Bank of Australia.
The AUD is down 3.0% against the Pound in 2025, with the Pound-to-Australian Dollar exchange rate (GBP/AUD) rising from 1.9957 to 2.0545. (This puts AUD/GBP down from 0.5010 to 0.4867).
The call comes ahead of the next major event for global FX, the White House's April 02 tariff announcements.
President Donald Trump is set to announce a series of "reciprocal tariffs" that will target tariffs placed on U.S. imports by other nations. However, and crucially, the U.S. will extend this to 'non-trade tariffs' such as Value Added Tax (VAT).
Many countries, including the UK, apply this sales tax, which brings them into scope for tariffs.
Commonwealth Bank thinks the upcoming tariff announcements will prove worse for the UK than Australia and provide "another support for AUD/GBP."
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Looking at the trade numbers, around 15% of the UK’s exports are to the U.S, for Australia only around 5% of exports are to the U.S.
"If value added taxes are counted as reciprocal tariffs, the UK can also face more negative direct impacts than Australia because its VAT rate of 20% is much higher than Australia’s 10% goods and services tax (GST)," explains Clifton.
