Pound Canadian Dollar (GBP/CAD) Exchange Rate Muted as UK Service Sector Plunges Further into Contraction
The Pound Sterling Canadian Dollar (GBP/CAD) exchange rate remained muted and the pairing is currently trading at around CA$1.6379.
On Thursday, data revealed that the UK service sector contracted in September, falling to 49.5.
The sector suffered from the sharpest rate of job shedding since August 2010, and both new and outstanding business declined.
The UK PMI composite declined further into contraction, with the data showing UK private sector employment fell at the fastest pace since December 2009.
Added to this, the Pound was left muted as all three sectors declined, making this the first broad-based decline since April 2009.
Commenting on the data, Markit’s Chief Business Economist, Chris Williamson noted:
‘A trio of grim reports on the economy means that the vast service sector has now joined manufacturing and construction in decline. Only the collapse in confidence immediately following the 2016 referendum has seen a steeper overall deterioration in the economy during the past decade, but September’s decline is all the more ominous, being the result of an insidious weakening of demand over the past year rather than a sudden shock.
‘While the early summer had seen resilient jobs growth, the surveys indicate that employment is now falling at the fastest rate since December 2009.
‘The increasingly dire readings push the surveys further into territory that would normally be associated with policy stimulus from the Bank of England, suggesting a greater likelihood that the next move in interest rates will be a cut.’
Sterling (GBP) Offered Support by Boris’ Brexit Proposals
The Pound rebounded from Wednesday’s low after Prime Minister Boris Johnson offered some vague details on his Brexit proposals.
However, Johnson’s speech during the Conservative Party offered little clarity on what the UK would propose to the European Union.
Added to this, the Prime Minister reiterated that if Brussels did not engage with the plan, the country would leave the EU at the end of the month without a deal.
Commenting on this, Nomura strategist, Jordan Rochester said:
‘We learned nothing new.
‘But hope is a powerful thing, so for the time being Johnson may make all the noise in the world but he doesn’t have the majority in parliament and no ability to have a no-deal or an election and the power is still in the hands of parliament.’
Canadian Dollar (CAD) Left Flat as Oil Prices Slide
The ‘Loonie’ was left muted against Sterling as the currency weakened to a four-week low against the US Dollar (USD) over fears the slowdown in US manufacturing activity would hurt the Canadian economy.
With Canada sending around 75% of its exports, including oil to the United States, heightened concerns of a slowdown have left CAD under pressure.
Added to this, oil prices were hit by fears the global economic outlook is worsening ahead of next week’s US-China talks in Washington.
Commenting on this, market strategist at AxiTrader, Stephen Innes stated:
‘What’s impossible to ignore is the economic realities being signalled in the latest run of doom and gloom financial market data which offers few if any reason for oil investors to be optimistic over the outlook for global demand.
‘While the near-term triggers may continue to relate to oil demand, next week US-China trade talks remain the unknown variable which could lend a modicum of support.’
Pound Canadian Dollar Outlook: Will CAD Extend its Losses?
Looking ahead to Friday, the Canadian Dollar (CAD) may edge down against the Pound (GBP) following the release of Canada’s trade balance.
If August’s trade balance disappoints, it is likely the ‘Loonie’ will extend its losses.
Meanwhile, the Canadian Ivey PMI is likely to cause the Canadian Dollar to slide further on Friday.
If September’s PMI slides further than expected and closer to stagnation, it is likely the Pound Canadian Dollar (GBP/CAD) exchange rate will edge up.