Pound Sterling to Canadian Dollar Exchange Rate Softens Despite Dire Data From Canada

March 2, 2015 - Written by Toni Johnson

STORY LINK Pound Sterling to Canadian Dollar Exchange Rate Softens Despite Dire Data From Canada

The Pound Sterling weakened against the Canadian Dollar despite the publication of a positive UK PMI and the release of dire data out of the North American nation.

Early in the session the Pound advanced against the ‘Loonie’ and other major peers as the latest Markit/CIPS compiled Manufacturing Purchasing Managers Index (PMI) showed that activity in the sector improved to a seven month high in the second month of 2015. The PMI rose to a reading of 54.1, beating economist forecast for a figure of 53.4. Despite the report beating expectations, some economists suggested that the UK economy is still unbalanced.

‘Scratching beneath the surface and we see a lopsided upturn, with the prime driver being a strong upsurge in new orders and production at consumer goods producers while a near-stalling of demand for plant and machinery points to ongoing weak business investment. Separately, the appreciation of sterling is holding back the progress of UK exporters. It seems that, despite years of talk about a rebalancing of growth, we are still seeing only limited headway in moving away from consumer-driven expansions and towards a greater contribution from exports,’ said senior economist Rob Dobson.

Sterling then weakened as investor attention shifted to Thursday’s Bank of England Interest rate and quantitative easing announcements. Economists are forecasting that policy makers will leave rates unchanged at the record low level of 0.5% and maintain its quantitative easing programme at £375 billion. Rates are not expected to change until inflation begins to improve. As a result, a rate hike is now not expected until later this year or perhaps 2016.
The Canadian Dollar made gains against the Pound and other peers despite the release of domestic data, which showed manufacturing activity in the North American nation declined in February. The PMI dropped from a reading of 51.0 into contraction territory of 48.7.

‘February’s data reflects the hit to confidence from the oil price shock with the weakness most evident in the energy intensive regions of the country. Over time, we expect the weaker Canadian Dollar and stronger US economy to turn sentiment higher,’ said the senior vice-president and chief economist at RBC.

Also released was a report, which showed that Canada’s current account deficit account deteriorated faster than expected in the fourth quarter. The deficit widened from C$9.60 billion in the third quarter to C$13.92 billion. The sharp widening was a result of falling oil prices.

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