Pound to Canadian Dollar: GBP/CAD Exchange Rate Slides to one-month Low on UK Data

January 5, 2015 - Written by James Fuller

STORY LINK Pound to Canadian Dollar: GBP/CAD Exchange Rate Slides to one-month Low on UK Data

The Pound Sterling made sharp losses against the Canadian Dollar and other major peers as weaker than forecast UK data caused traders to raise their bets that the Bank of England will refrain from raising interest rates anytime soon and that the UK economy is experiencing a slowdown.

Sterling weakened to its lowest level in 17 months against the US Dollar and gave up an earlier gain against the Euro as the construction data released by Markit/CIPS showed that construction activity in the UK slowed more than forecast in December. According to the report, activity fell from November’s figure of 57.6 to 59.4 in December, and a figure that was well below economist expectations for a figure of 59.0.

‘The construction data adds to nervousness surrounding the Pound. In the short term, GBP appears vulnerable to further weakness especially versus a resurgent US Dollar,’ said BNP Paribas analysts led by Steven Saywell.

Also weighing on the Pound are growing expectations that May’s general election will end in a stalemate, as none of the major political parties looks likely to win a majority. Labour is choosing to fight its campaign using the NHS and avoiding its shambolic handling of the economy in its previous time in charge whilst in contrast the Conservatives will be using the economic recovery as the poster boy for its campaign. Some economists are concerned that UKIP will hold the balance of power, as support for the former third largest party the Liberal Democrats remains weak.

Polls are suggesting that voters are unconvinced by any of the parties with most polling experts forecasting for another hung parliament.

‘If we’re going to have four months of this I think the public are going to get very bored and look for something a bit more positive. If people get bored with this binary choice, you may actually see the number of people who vote for the two so-called main parties at its lowest level ever,’ said UKIP leader Nigel Farage in an interview with Sky News.

The Canadian Dollar meanwhile is likely to maintain its gains against the Pound as economists expect UK data releases due later in the week to disappoint and add to expectations that the BoE will hold off on raising interest rates until later in the year.

The currency is expected to remain weaker against the US Dollar however as crude oil prices continued to decline. Prices of ‘Black Gold’ slid to its lowest level since 2009 as record oil production in Iran and Russia added to the already swamped market.

*Update 1: The rising strength of the US Dollar continued to put pressure upon the Canadian Dollar and falling oil prices kept the currency weaker against a number of major peers.

*Update 2: The Canadian Dollar could receive support from the publication of PPI data on Tuesday, Balance of Trade data on Wednesday and Employment data on Friday.

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