Pound to Canadian Dollar Exchange Rate Tumbles Despite Bank of England (BoE) Rate Hike
The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate has been one of this week’s worst performing Pound (GBP) pairings, as broad Pound weakness combined with NAFTA hopes have left the Canadian Dollar (CAD) much more appealing.
Since opening this week at the level of 1.7107, GBP/CAD briefly edged higher earlier in the week before sliding lower and tumbling after Thursday’s Bank of England (BoE) policy decision.
At the time of writing on Friday, GBP/CAD had just hit a fresh low of 1.6916 – the pair’s worst level in over six months – since January 2018.
The primary reasons for losses in the Pound to Canadian Dollar exchange rate were the cautious tone taken by the Bank of England (BoE) this week, as well as market hopes that North American Free Trade Agreement (NAFTA) renegotiations could succeed.
While markets remain highly anxious about the possibility of a full blown trade war between the US and China, the US stance on allies Mexico and Canada appears to have softened somewhat, leaving the Canadian Dollar appealing.
Pound (GBP) Exchange Rates Pressured Further by Poor UK Ecostats
Following the Bank of England’s (BoE) cautious interest rate hike on Thursday, the Pound faced additional pressure on Friday as Britain’s July services PMI data from Markit disappointed investors.
Services make up the majority of Britain’s economic activity, so news that the UK services sector had performed below expectations in July worsened concerns about Britain’s cloudy economic outlook and the Brexit process.
The services PMI was forecast to slip from 55.1 to 54.7, but instead the figure slumped to just 53.5.
According to Tim Moore, Associate Director at IHS Markit, Brexit uncertainties had a large part to play in the reason for the lower than expected data:
‘Looking at demand fundamentals, service providers commented that Brexit uncertainty had held back new project wins, reflecting risk aversion and a wait-and-see approach to investment spending among international clients.’
On top of this, Friday morning also saw BoE Governor Mark Carney express concern about the still real possibility of a worst-case scenario ‘no deal’ Brexit, rounding off another week where the spectre of Brexit uncertainty weighs heavily on most aspects of Pound trade.
Canadian Dollar (CAD) Supported by Domestic Factors and Trade Hopes
Despite remaining concerns about the possibility of a full blown trade war between the US and China, as well as protectionist rhetoric from the US in general, the Canadian Dollar has actually seen strong performance in recent weeks.
Investors have been finding the risky trade-correlated Canadian Dollar appealing, due to strong Canadian ecostats and global trade news that typically benefits Canada’s economy.
This has included stronger prices of oil, Canada’s most lucrative commodity, as well as speculation that the US is softening its stances on North American Free Trade Agreement (NAFTA) renegotiations.
While most progress in NAFTA talks appears to be between the US and Mexico, the US’ softer stance has still benefitted the Canadian Dollar.
According to Bipan Rai from CIBC Capital Markets, the Canadian Dollar isn’t being hurt too much by the recent risk-off mood in markets either:
‘The domestic fundamentals look really good right now and the market is looking at the CAD as more of a lower beta play in a risk-off environment,’
Pound to Canadian Dollar Forecast: GBP/CAD Investors Anticipate Next Friday’s Data
Most of next week’s UK and Canada economic calendars will be a little quieter, and as a result the Pound to Canadian Dollar (GBP/CAD) exchange rate will spend most of the week reacting to political developments and trade news.
For example, any Brexit developments could have a big impact on the Pound, while the Canadian Dollar is likely to be influenced by oil price news or developments in NAFTA renegotiations.
In terms of data, Canada’s Ivey PMI from July on Tuesday or June housing data on Wednesday and Thursday could cause some Canadian Dollar movement in the middle of the week.
However, ultimately investors will be highly anticipating Friday’s session when slews of influential UK and Canadian data will be published and have the potential to influence the GBP/CAD outlook.
Friday will see the publication of Britain’s latest Gross Domestic Product (GDP) growth rate data, including Q2 growth projections and June growth results.
On top of this, UK trade balance, industrial production, and manufacturing production data from June will be published.
Lastly, Canada’s July job market results will be published during Friday’s American session and could cause some late-week movement in the Pound to Canadian Dollar (GBP/CAD) exchange rate.