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Rip-roaring Canadian GDP Sends Pound Sterling Canadian Dollar (GBP CAD) Tumbling

July 28, 2017 - Written by James Fuller

• Pound Sterling / Canadian Dollar Slips to 1.6279 – Canadian Dollar / Pound Sterling Hits 0.6136
• Canadian GDP Beats Expectations – Rate hike bets increase
• Pound Bolstered by Talks of a Softer Brexit – Proposals of Transitionary Period Assuage Some Fears

The Pound to Canadian Dollar exchange rate took a sharp tumble today as Canada’s gross domestic product figures were revealed.

Statistics Canada reported that Canada’s month-on-month GDP surpassed all expectations, increasing from the 0.2% previous to 0.6% for May.

This was the seventh consecutive monthly increase in the Canadian economy, as industries involved in goods production contributed with a 1.6% rise, especially industries like mining, quarrying, gas and oil extraction.
Service producing industries demonstrated growth of 0.2%, primarily driven by insurance services, finance and retail trade.

Demand for the Canadian Dollar surged as a result, with markets now seeing a 73.6% chance of a rate increase at the bank’s October meeting (with 67.2% chance prior). October being the primary prediction, as a significant amount of economists expect the bank to maintaining distance from the previous, and very recent, rate hike as to not shock the economy.

Pound (GBP) Bolstered by Proposals of a Transitional Brexit Period



Whilst the Pound Canadian Dollar exchange rate has dramatically dipped, it did fluctuate earlier in the day due to recent comments from UK Finance Minister Philip Hammond.
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Hammond made clear that he wanted to avoid an abrupt cut-off point for EU-UK relations, asserting that a ‘cliff-edge’ end at 2019 would not be good for either nation.

He stated:

‘I think there is a broad consensus that this process has to be completed by the scheduled time of the next general election, which is in June 2022, so a period of at the most three years in order to put these new arrangements in place and move us on a steady path without cliff edges from where we are today to the new long-term relationship with the European Union’.

The Pound gained following these comments, primarily as a great deal of investors consider the prospect of an abrupt exit from the EU’s single market to be of significant threat to the UK economy. Hammond’s confirmation that the UK will seek a transition period, after 2019 leading into 2022, temporarily alleviated such anxieties.

GBP CAD Forecast: Bank of England Rate Decision Could Help Sterling Claw Back some Losses



Whilst the Canadian Dollar is likely to end this trading week on top, next week’s Bank of England (BoE) rate decision due on Thursday could afford Sterling the opportunity to make some gains.

Whilst markets currently expect the Bank of England policymakers to continue to remain divided on the subject of an interest rate hike, any indication of hawkishness, (be it within the accompanying statement, the Inflation report, or indeed simply in more members voting for a hike) will bolster demand for the Pound. Conversely a dovish sentiment will only cement the ‘Loonie’s lead.

In respect to data, the UK will be receiving its net consumer credit figures for June on Monday and its Markit PMIs on Wednesday and Thursday. Canada on the other hand will receive its significant July manufacturing PMI on Tuesday and a host of employment data on Friday.


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