The Pound has unexpectedly fallen against the Canadian Dollar on Friday afternoon, following a negative trader reaction to Brexit news.
GBP/CAD trading opened in the area of 1.7116 earlier, but has since dropped to 1.7098.
The headline has been that the UK is now clear to start discussing post-Brexit trade and a transitional deal, after approval from EU leaders.
The downside is that transitional talks are not expected to start until February 2018, while trade negotiations won’t begin until March.
This leaves the UK teams with a tight timeline in which to reach an agreement, especially given the delays previously seen in the Brexit process.
(First published December 15th, 2017)
The Pound has dropped against the Canadian Dollar today, but has a definite chance at a rally in the near-term.
Green Light for Further Brexit Talks could Trigger GBP/CAD Rally
The Pound could see a dramatic rise against the Canadian Dollar on 15th December, when EU leaders conclude their two-day summit in Brussels.
The leaders will be discussing the UK’s progress in Brexit talks so far and it is hoped that they will approve of discussions.
In the event of official approval, the Pound could advance because UK negotiators will finally be cleared to discuss a transitional deal and post-Brexit trade.
Approval doesn’t automatically guarantee a smooth Brexit, however, as trade talks aren’t expected to begin until March 2018.
In addition, European Commission President Jean-Claude Juncker has warned that ‘Phase two will be more difficult that phase one’.
Most forecasters believe that the EU will give the UK a pass on its Brexit efforts, but there is still a slim chance of a denial.
In this outcome, the Pound could drop against the Canadian Dollar because Brexit discussions would be set back significantly.
Resolution of BOC Governor’s Concerns could Improve CAD/GBP Rate
Following a series of remarks from Bank of Canada (BOC) Governor Stephen Poloz, the Canadian Dollar has appreciated against most of its rivals.
The Governor explained his greatest concerns about future economic growth, highlighting household debt, youth unemployment and electronic attacks, among other issues.
On the former subject, Poloz stressed that households need to take more into consideration when entering into fresh mortgage arrangements;
‘I offer this advice: testing yourself to make sure you can handle your mortgage payments if interest rates were higher at renewal is a very good idea, whether it is a rule or not’.
Poloz has additionally called out employers on not offering enough jobs to young people, starting;
‘There surely is room for more ambitious on-the-job training programs in this picture’.
If household debt levels remain manageable and youth unemployment picks up in 2018, the Canadian Dollar could steadily rise against the Pound.
Poloz himself has ultimately remained optimistic about 2018 for Canada, stating;
‘Let me repeat that the economy has made tremendous progress over the past year, and it is close to reaching its full potential.
We are very encouraged by this, and we are growing increasingly confident that the economy will need less monetary stimulus over time’.
Recent Interbank GBP CAD Exchange Rates
At the time of writing, the Pound to Canadian Dollar (GBP CAD) exchange rate was trading at 1.7116 and the Canadian Dollar to Pound (CAD GBP) exchange rate was trading at 0.5837.
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