GBP CAD Exchange Rate Plunges as Post-Election Panic Sets In

June 12, 2017 - Written by Toni Johnson

STORY LINK GBP CAD Exchange Rate Plunges as Post-Election Panic Sets In

This week has opened with heavy losses for the Pound, with the GBP CAD exchange rate dropping to 1.7017, the worst result in nearly two months.

In the post-election malaise, Pound traders have struggled to find positive news to latch onto. The dominant sentiment at the start of the week has been concern, due to there still not being a functional UK government.

The weekend saw the Conservatives start talks with the Democratic Unionist Party (DUP) in earnest, but neither party has yet reached a coalition agreement.

This comes as DUP policies face scrutiny, with some observers speculating whether the two parties will be able to put aside differences on matters like gay rights and the pensions ‘triple lock’.

The latest update in this tense situation is that the state opening of Parliament, conducted by the Queen, may not start on June 19th as planned.

This would mean that the start of Brexit talks would also have to be delayed, as EU negotiators would need an official government to open channels with.

All of this speculation and delay has greatly weakened confidence in the UK economy and further days without a government are only likely to worsen the situation.

Looking ahead, the Pound may experience further losses against the Canadian Dollar on Wednesday.

Tuesday will bring UK inflation rate figures for May, followed by wage growth results for April on Wednesday.

If inflation rises or otherwise remains above the level of wage growth then the Pound may fall in demand. This is because such a disparity would indicate a wage squeeze, which leads to less retail spending and reduced overall economic growth.

Recent Canadian Dollar gains have come as a result of uncertainty in the US, as well as a minor uptick in crude oil prices.

In the former case, fears that the reformation of the Dodd-Frank Act could destabilise the US economy has limited interest in the US Dollar, raising Canadian Dollar demand.

In the latter, the price of crude oil on the WTI index has risen to $46.37 per barrel today, following a period of high fluctuation over the previous month.

Further Canadian Dollar support has come from an RBC Economics outlook. According to the company, uncertainty about trading with the US has not negatively impacted late 2016’s economic recovery. Additionally, RBC economists forecast annual growth of 2.6% in 2017, ‘almost double the average pace of the prior two years’.

The RBC report has not been entirely positive, however. Focusing on a possible US interest rate hike on Wednesday, the company predicts that the US Dollar will appreciate on the news, leading to a converse Canadian Dollar slide.

In domestic news, this week will bring new car and manufacturing sales for April, both out on Thursday. Forecasts are for a rise in manufacturing sales of 0.7%, which could restore demand after a possible crash on Wednesday’s US rate news.

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TAGS: Canadian Dollar Forecasts Pound Canadian Dollar Forecasts