GBP to CAD Exchange Rate Flat as UK Political Developments Fail to Boost Confidence

June 27, 2017 - Written by Frank Davies

STORY LINK GBP to CAD Exchange Rate Flat as UK Political Developments Fail to Boost Confidence

This week’s UK political developments and Brexit comments have done little to influence the British Pound to Canadian Dollar exchange rate. The Pound remains limp on uncertainty while the Canadian Dollar has been weakened due to oil concerns.

The pair appears to have stabilised somewhat after last week however. GBP/CAD opened this week at the level of 1.6865 and since then has trended within the range of less than a cent - between 1.6909 and 1.6831.

GBP Fails to Benefit from Latest Brexit Comments

This week has seen little in the way of influential UK data so far and investors have instead been focusing on developments regarding Britain’s political situation and the Brexit process.

After two weeks of secretive negotiations, the UK Conservative party finally announced a deal with Northern Ireland’s Democratic Unionist Party (DUP) this week. In return for essential DUP support in certain key Commons votes, the UK government will invest £1bn in Northern Ireland.

Investors expected some sort of deal to be reached so this had little effect on the Pound.

Instead, GBP traders remain concerned that the deal could be unstable in the long-term, or that UK Prime Minister Theresa May could face a leadership challenge in the coming months due to her error in calling this year’s election.

May’s comments on post-Brexit rights for EU citizens have also failed to boost Pound appetite this week. She indicated EU citizens would be able to work up to having similar rights as UK citizens, but has been criticised by EU negotiators for failing to provide clarity and guarantees.

EU leaders have argued that EU nationals in UK deserve the same level of protection as they do under EU law.
Sterling was little changed following Tuesday comments from Bank of England (BoE) Governor Mark Carney.

In a press conference following the publication of the BoE’s latest financial stability report, Carney continued to reassert the need for loose monetary policy in Britain to defend against Brexit risks.

CAD Weak Despite Oil Price Gains

While the Pound has seen mixed performance this week, the Canadian Dollar has been unable to capitalise.

Poor Canadian data caused CAD to drop late last week. Analysts had forecast that Canada’s May inflation rate would only slip to 1.5% year-on-year, but it dropped to just 1.3% from 1.6%.

This weighed heavily on market hopes that the Bank of Canada (BOC) could tighten Canadian monetary policy within the next year.
Lingering concerns about Canada’s biggest commodity export, oil, have also weakened Canadian Dollar appetite.

While oil prices have bounced from their lowest levels in 10 months, prices remain volatile and gains have been limited by a persistent oil supply glut.

Markets are increasingly concerned that an OPEC-led oil production cut will not be able to significantly lighten an oil supply glut, which has kept oil prices weak in recent years.

Analysts are projecting that oil prices will not see a notable recovery this year. OPEC’s rivals continue to ramp up production and demand for the commodity remains subdued. This will limit the Canadian Dollar’s strength.

GBP/CAD Forecast: Central Bank Speeches on Wednesday

Wednesday will see speeches from the Governors of both the Bank of England (BoE) and Bank of Canada (BOC).

It is unlikely that BoE Governor Carney’s second speech of the week will lead to a notable Pound shift as investors were unsurprised by his dovish tone on Tuesday.

It’s more likely that BOC Governor Stephen Poloz will influence GBP/CAD exchange rate movement. Following last week’s disappointing Canadian inflation data, any shift in tone from the BOC Governor will impact the Canadian Dollar.

Economic data due towards the end of the week is also likely to influence GBP/CAD movement.

Britain’s final Q1 Gross Domestic Product (GDP) report will be published, as well as Canada’s April GDP stats.

Canadian growth is expected to slip from 0.5% to 0.2%. If it beats expectations, CAD demand could increase regardless of this week’s oil news.

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TAGS: Pound Canadian Dollar Forecasts