Uncertainty surrounding the likely outcome of the snap general election has kept the Pound under pressure, even as UK data bettered expectations.
Both the manufacturing and construction PMIs for May proved stronger than forecast, suggesting that the domestic economy has bounced back after a weak first quarter.
Particularly encouraging was the sharp uptick in the construction sector, with the index jumping from 53.1 to 56.0 on the month.
Even so, this was not enough to bolster the Pound Canadian Dollar exchange rate which continued to trend narrowly ahead of the weekend.
Although the odds are still on for the Conservatives to return to power after Thursday’s election Sterling remains fragile and vulnerable to further downside pressure.
Analysts at HSBC noted:
‘As the Tory lead in the opinion polls has narrowed from 23 points to as little as 5 points, GBP has come under pressure. However, under the UK’s “first past the post” system this would still be enough for the Conservatives to secure an election win. We do not believe this snap election will materially alter the probabilities attached to a ‘hard’ or ‘soft’ Brexit from the Article 50 negotiation process.’
Either way, the GBP CAD exchange rate is likely to see increased volatility as markets brace for the final results of the snap election.
However, the Pound could find some support at the start of the week if the May services PMI follows the recent trend and surprises to the upside.
Developments in the oil market have limited the appeal of the Canadian Dollar, meanwhile, even as US stockpiles showed a larger drawdown than anticipated.
While the OPEC-led production limiting agreement appears to be having a positive impact in eroding the global oversupply glut it was not long before oil prices returned to a downtrend.
Investors were discouraged by the announcement that Donald Trump intends to withdraw the US from the Paris climate agreement, suggesting that US oil output is only likely to increase.
With risk appetite generally weakened this naturally prompted the ‘Loonie’ to trend lower, in spite of the Bank of Canada’s (BOC) recent shift towards a more hawkish outlook.
Concerns over the future of the oil market are likely to offer support to the GBP CAD exchange rate in the near term, particularly if the odds of an imminent Federal Reserve interest rate hike remain high.
If May’s raft of Canadian labour market data proves positive, however, the Canadian Dollar could be encouraged to make fresh gains across the board.