Pound-to-Australian Dollar Week Ahead Forecast: Don't Fight the Trend

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The week-ahead outlook for the pound to Australian dollar exchange rate remains bearish, even as increasingly stretched conditions argue for some near-term caution.

GBP/AUD starts the new week on the back foot, extending its decline to 1.9388, with the Aussie finding support amidst renewed weakness in the U.S. dollar.

Australian dollar strength continues to stand out, reinforcing the view that AUD is emerging as a favoured alternative to the dollar in 2026 as investors rotate toward higher-yielding and commodity-linked currencies.

However, there is also a distinct element of pound-specific weakness feeding into the move at the start of the week.

Investor nerves have been rattled by renewed political uncertainty in the UK, with concerns growing that the position of Prime Minister Keir Starmer is becoming increasingly precarious.

Over the weekend, Starmer’s closest ally, Morgan McSweeney, resigned as his Chief of Staff, a development that has amplified speculation about leadership instability.

Those who have followed Britain's unstable politics over recent years will see a familiar pattern playing out and conclude that it won't be long until Starmer follow's McSweeney out.

Even if Starmer survives the immediate fallout, markets are wary that he may be forced to shift policy leftwards to placate restive MPs within the Labour Party, a move that would likely come at the expense of market-friendly reform and fiscal credibility.

Against that backdrop, the technical setup for GBP/AUD remains resolutely bearish and argues against standing in the way of the prevailing trend.

Price action continues to favour the Australian dollar, with rallies in the cross proving short-lived and selling pressure quickly reasserting itself.

That said, momentum indicators are now flashing warning signs for trend followers.

The daily Relative Strength Index has slipped back into oversold territory, reaching levels not seen since 2022.

Such extreme readings do not signal an imminent reversal, but they do suggest the pace of losses could slow and give way to a period of consolidation.

Our working assumption is that GBP/AUD could still push lower into the 1.85 to 1.90 region before the selloff begins to lose momentum and the pound starts to find its feet.

Until then, the message from both politics and price action is clear, with the path of least resistance still pointing lower.

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