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The pound is forecast to remain under pressure against the Australian dollar this week.
The pound to Australian dollar exchange rate (GBP/AUD) could be on course to test 2.0, particularly if this week's Reserve Bank of Australia (RBA) policy decision strikes a hawkish tone.
The exchange rate has fallen for eight of the past nine trading days, which speaks of building downside momentum amidst growing demand for AUD, albeit within a range that has been intact since late October.
Monday is already shaping up to be another loser for sterling, which puts the 2.0 level in scope for the coming week:
The pair last week broke below the 21-day exponential moving average, which is consistent with a view that near-term price pressures are building. While below here, weakness is likely to extend.
We could get a test of 2.0 within the coming 24 hour period if the RBA decision lands on the 'hawkish' end of the spectrum. Consensus expects the central bank to keep the cash rate on hold at 3.60%.
There's been a notable repricing in Aussie currency and bond markets over the past two weeks to reflect an increasingly fashionable view that the RBA has quit cutting interest rates owing to resilient domestic economic data.
In fact, the forwards market shows the next major shift in Australia's interest rates is to the upside.
Heading into the Tuesday RBA decision, markets will require the central bank to verify this hawkish shift to sustain AUD strength.
Any disappointment - i.e. any pushback against the notion that the next move is a rate hike - could trigger a retracement of the moves of the past ten days.
This would offer GBP/AUD a shot at rallying.
"We doubt the Board will relay a hawkish message just yet, given it believes inflation expectations remain anchored," says a note from TD Securities.
However, we would expect GBP/AUD upside to be short-lived and unlikely to sustain itself.
Should the RBA verify the market's recent shift in assumptions, then AUD will hold its current line of appreciation, pressuring GBP/AUD down to 2.0.
"The Statement is likely to reinforce that the Bank is alert to the possibility that inflation pressures are building," says TD Securities.
Also keep in mind that midweek sees the Federal Reserve deliver its latest policy decision, which will reverberate across FX markets.
The Australian Dollar - which has a high sensitivity to global investor sentiment - could find that this decision has a larger impact than that of its own domestic central bank.
If the Fed cuts interest rates and verifies market bets for further cuts in 2026, then AUD can strengthen.
However, any caution on the 2026 path owing to concerns about simmering inflationary pressures in the U.S. could trigger a negative market reaction that weighs on the AUD and helps GBP/AUD recover through the second half of the week.
So although 2.0 is our favoured target (60% odds), a counter rally by sterling that pushes the pair back to 2.03 is still a decent prospect.