GBP CAD Exchange Rate Volatile as Markets Speculate on UK Election Outcome

May 31, 2017 - Written by John Cameron

STORY LINK GBP CAD Exchange Rate Volatile as Markets Speculate on UK Election Outcome

Speculation over the outcome of next week’s general election has provoked volatility for the Pound Canadian Dollar exchange rate.

Although a YouGov forecast suggested that a hung parliament could emerge from the election put severe downside pressure on the Pound this downtrend did not last for long.

After an opinion poll conducted by Panelbase gave the Conservatives a fifteen point lead over Labour the mood towards Sterling improved dramatically, encouraging the GBP CAD exchange rate to rally.

While the latest UK mortgage approvals figure pointed towards a further loss of confidence within the domestic economy this was not enough to particularly weigh on market sentiment at this juncture.

Election developments look set to dominate the outlook for the Pound in the short term, although May’s raft of UK PMIs could provoke some volatility for GBP exchange rates.

Following the disappointing slowdown seen in the first quarter gross domestic product report markets will be hoping to see signs of a rebound in growth as the second quarter progresses.

As a result any uptick in the PMIs could encourage investors to pile back into Sterling, even as the uncertainty of the election and upcoming Brexit negotiations continue to hang over its longer term appeal.

On the other hand, if the services PMI shows a further weakening in economic activity this could prompt the GBP CAD exchange rate to slump sharply.

Demand for the Canadian Dollar, meanwhile, is likely to pick up this afternoon if the first quarter Canadian GDP figures prove encouraging.

Forecasts point towards the Canadian economy having seen strong growth at the start of 2017, with the annualised quarterly GDP expected to have risen from 2.6% to 4.2%.

As analysts at TDS noted:

‘Even if we see a slight disappointment in GDP (3.5% let’s say), it will still be an objectively strong print, which fits with the recent change in tone from the BOC.’

Coupled with the more optimistic outlook of the Bank of Canada (BOC) a strong showing here could boost the Canadian Dollar higher across the board, in spite of the fresh softening in oil prices.
Concerns over the persistent issue of the global oversupply glut have continued to weigh on crude oil, even after the OPEC-led production limiting agreement was extended for another nine months.

Commodity weakness could limit the upside potential of the Canadian Dollar this week, although April’s domestic trade data may still encourage greater demand for the higher-yielding currency.

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