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Pound to Canadian Dollar Mixed as Oil Falls

June 1, 2015 - Written by Ben Hughes

Pound to Canadian Dollar Mixed as Oil Falls



The Pound to Canadian Dollar was little changed as expectations that a wealth of US economic data due for release over the course of the week will come in positively and help drag the ‘Loonie’ higher. Domestic UK data offered little support as market attention remained fixed on the ongoing debt crisis in Greece. Athens is expected to miss a repayment owed to the International Monetary Fund on Friday and economists are nervous as to what the consequences will be on other major currencies and the global economy in general.

According to data released by Markit, manufacturing activity in the UK improved slightly in May after it slumped to a seven-month low in April. Strong domestic demand dragged the index higher but weak demand from overseas prevented any further improvement. The Markit/CIPS manufacturing index increased to a reading of 52.0 in May, an improvement from the downwardly revised figure of 51.8 seen in April. The sector is likely to remain under pressure over the coming months as the strong Pound and a softening in business investment combine to create a slowdown.

‘Expectations of a broad rebound in UK economic growth during the second quarter of the year are called into question by these readings. Manufacturing looks on course to act as a minor drag on the economy, as the sector is hit by the combination of the strong Pound and weak business investment. Hiring was the slowest in more than two years, suggesting the boom in job creation that Britain has enjoyed since mid-2013 may be starting to tail off,’ said Rob Dobson, senior economist at Markit.

The Canadian Dollar came under pressure from a fall in crude oil prices. The value of the commodity fell as worries increased that oil production in Organisation of Petroleum Exporting Countries (OPEC) increased to a two-and-a-half year high of 31.22 million barrels per day. Production in the US is also expected to continue to increase despite data released last week showing that a few US oilrigs went idle.

‘OPEC continues to produce well above target, and also well above demand for its oil. The drop in the US oilrig count resumed last week with 13 rigs idled. Despite this decline, we believe that should prices remain $60 per barrel, US producers will ramp up activity,’ said a Goldman Sachs analyst.

The GBP/CAD exchange rate will experience volatility throughout the week due to the release of a number of UK PMI reports and the Bank of England’s (BoE) latest interest rate decision.

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