- UPDATE: UK mortgage approvals at one month low – Consumer credit strengthens, however
- Pound correcting after previous shocks – Lloyds announcements triggered GBP plunge
- UK consumer confidence experiences huge drop – Steepest decline in 26 years
- Canadian Dollar still weakened by bearish oil market – Further oil declines could come, economists warn
- GBP CAD exchange rate forecast – Canadian GDP likely to weaken CAD
Correctional trading is boosting the GBP CAD exchange rate, with the Canadian Dollar weakened by persistent declines in crude oil and approaching GDP data.
Pound Uncertain as Strong Consumer Credit Clashes with Declining Mortgage Approvals
Consumer lending strengthened in June, but mortgage approvals dropped to a fresh one-year low, according to the latest data. May’s approvals were retrospectively downgraded to 66.7k, while June’s approvals clocked in at 64.8k; -1,000 below forecast. However, net consumer credit rose from an upwardly-revised 1.6 billion to 1.8 billion, which was 0.4 billion above the forecast level.
(Last updated 12.37, 29/07/16)
Ascendant Pound Rebounds after Plunging UK Consumer Confidence
The Pound is beginning to recover today after developments yesterday and early this morning weakened the UK asset. Lloyds Banking Group had announced the closure of 200 branches and the cutting of 3,000 jobs – on top of existing cost-saving measures – as it prepares for lower interest rates from the Bank of England (BoE). While Brexit was not the motivator, according to a clarifying statement released by Lloyds later in the day, Brexit uncertainty was noted as a contributor.
Consumer sentiment data released early this morning further weakened the Pound after showing a 26-year high in consumer confidence. The GfK consumer confidence survey fell to its lowest level in nearly three years, dropping on a scale last seen in 1990 when interest rates were raised to 15% and Margaret Thatcher was Prime Minister. The previous month’s reading had clocked in at -1, but in a special post-Brexit survey, confidence had dropped to -9. Forecasts for the July GfK measure had expected a drop on June’s figures to -9, but instead the index fell to -12.
GfK Head of Market Dynamics, Joe Staton, commented;
‘We’ve seen a very significant drop in confidence, as is clear from the fall in each of our key measures. Its future trajectory depends on whether we enter a new period of damaging economic uncertainty or restore confidence by embracing a positive stance on negotiating a new deal for the UK.’
Another consumer confidence index, compiled by YouGov and the Centre for Economic and Business Research (CEBR), also showed three-year lows for consumer confidence when it was released yesterday.
Despite the GfK result, the extent of yesterday’s Pound losses has created a strong buying opportunity, causing the UK unit to recover as investors pile back in.
Anticipation of Weak GDP Data Adds to Downside Canadian Dollar Pressure as Oil Slide Continues
It seems the rally in crude oil is well and truly over, with market bears having been vindicated in their assessment that the latest recovery was unsustainable. At the time of writing WTI Crude Oil has declined -0.6% to hit US$40.89 per barrel; a fourteen-and-a-half-week low. Meanwhile, Brent Crude has dropped -0.8% to US$42.34, erasing all gains made during the past fifteen-and-a-half-weeks.
Due to slowing gasoline consumption in the US, oil economist Philip Verleger believes Brent could continue its downward trend, noting;
‘The fall in gasoline prices will pull crude prices down. In the absence of a disruption, do not be surprised to see Brent falling below $40 a barrel, possibly to $37, by mid to late September.’
Hedge fund positioning suggests that West Texas Intermediate (WTI) could also be in for a decline. Hedge funds were in possession of around 420 million barrel’s worth of options and futures contracts, but in the subsequent weeks the difference between bets on prices rising and prices lowering has fallen under the equivalent of 300 million barrels of crude. Vienna-based JBC Energy analysts explained;
‘This has been largely driven by a fairly rapid take-up of short positions by the money managers group, which looks reflective of a broader change in sentiment. Inputs on the speculative side are certainly more bearish than bullish and crude fundamentals could certainly be used to make a case that there is some more downside to prices yet to be flushed out.’
Pound Canadian Dollar (GBP CAD) Exchange Rate Forecast; Canadian CDP Predicted to Further Weaken ‘Loonie’
The rest of the day’s UK data is likely to be fairly innocuous unless consumer credit or mortgage approvals have shifted drastically on previous levels. Canadian data is predicted to be more volatile, with May’s GDP figures expected to show monthly contraction and a yearly slowdown. Month-on-month GDP is forecast to decline from 0.1% to -0.5%, while year-on-year GDP is anticipated to slow from 1.5% to 1.3%.
Current GBP, CAD Conversion Rates
The Pound Canadian Dollar (GBP CAD) exchange rate is currently trading between 1.1868 and 1.1922, while the Canadian Dollar Pound (CAD GBP) exchange rate is trending between 0.5745 and 0.5771.