The Pound to Canadian Dollar (GBP/CAD) exchange rate has risen slightly today, following the release of forecast-beating UK services stats.
The national services PMI rose from 53.8 points to 54.2, just beating predictions for a 54.1 point reading.
The news led to cautious optimism from GBP traders, but there were underlying concerns that the figure might have been higher without the influence of Brexit.
(First published January 3rd, 2018)
Pound to Canadian Dollar Exchange Rate Forecast: Higher Services Activity could Boost GBP
The Pound to Canadian Dollar exchange rate declined slightly on Wednesday’s trading session, following a slowdown in UK construction activity.
December’s construction reading showed a greater-than-expected reduction during the month, lowering confidence among GBP traders.
Looking ahead, Sterling might be further influenced by Thursday morning’s UK services sector PMI, which covers areas like tourism and retail sales.
The sector also includes financial services, which covers banking and much of the City of London’s most lucrative activities.
Fortunately for Pound traders, forecasts are for Thursday’s services reading to show growth in December, from 53.8 points to 54.1.
If the actual figure is even higher than this estimate, the Pound to Canadian Dollar exchange rate could rise sharply.
The November services PMI provides some clues for how December’s figure could print. As part of the November report, Markit Chief Business Economist Chris Williamson said;
‘Despite weaker service sector expansion, the latest survey data indicates that the economy is on course to enjoy robust growth in the fourth quarter.
The survey data are so far consistent with the economy growing at a quarterly rate of 0.45% in the closing months of 2017’.
Looking at the impact of rising oil prices in November, however, Mr Williamson added;
‘The survey data suggests that inflationary pressures have yet to peak’.
This closing remark means that a rise for the services sector in December is not guaranteed, owing to the negative effects of increasing inflation during the month.
If services activity falls instead of rising as expected, the Pound to Canadian Dollar exchange rate could tumble.
Canadian Dollar to Pound Exchange Rate could Drop on Spike in Unemployment
The Canadian Dollar advanced against the Pound during Wednesday’s trading, but the CAD/GBP rate could drop in the near-term if Bank of Canada (BOC) forecasts are accurate.
Over the Christmas period, the BOC published a report warning that raising the minimum wage in Canada could result in around 60,000 job losses.
Minimum wages differ across Canada’s various regions, but Alberta, Quebec and Prince Edward Island are all tipped to hike minimum incomes by the end of the year.
While higher basic incomes are good news for workers, they also mean that employers have to spend more on salaries instead of on investment and development.
As such, the BOC has stated that;
‘Empirical evidence is mixed on the [impact] of minimum wage effects, [but] most studies find that the reduction in employment is statistically significant’.
Higher wages may mean that workers spend more and boost economic growth, but whether this is worth a potential wave of redundancies across the country remains to be seen.
If Canadian unemployment rises sharply as a direct result of higher minimum wages, the Canadian Dollar to Pound exchange rate could rapidly decline.
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