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GBP CAD Exchange Rate Slumps over Concerns for UK Manufacturing Sector

October 2, 2017 - Written by John Cameron

The Pound Canadian Dollar (GBP CAD) exchange rate slipped at the start of this week’s session as markets grew increasingly concerned over the state of the UK’s manufacturing sector.

Pound (GBP) Tumbles as Manufacturing PMI Misses

Sterling sentiment took a hit this morning as a disappointing Manufacturing PMI and bleak report about the sector’s possible future following a ‘hard Brexit’ saw investors flock to alternative markets.

According to the data published by IHS Markit this morning activity in the UK’s factory sector tumbled in September with the manufacturing index sliding from a downwardly revised 56.7 to 55.9, falling below market expectations of a more modest drop to 56.4.

While employment and orders continued to show growth last month, it appears that this was undermined by rising input costs for manufacturers, with increased commodity prices as higher import costs greatly diminishing profits from exports.
Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply said;

‘Though new order growth remained broadly steady with business from both export and domestic markets, and employment levels were on the up, the threat of further inflationary pressures in the coming months continue to be a concern for margins as the sector experienced the highest inflationary rise in input prices for six months.’

‘Though optimism was buoyant, supported by business investment, this levelling of activity growth raises fears of a possible entrenchment developing over the coming months if economic conditions fail to improve.’

Adding to the concerns over Britain’s manufacturing sector was the release of a report from law firm Baker McKenzie this morning as its analysts suggest that UK manufacturers could stand to lose £17bn a year in tariffs in the event of a hard Brexit.
Baker McKenzie Trade partner Jenny Revis said;

‘These figures indicate the extent to which the UK’s key manufacturing sectors are likely to be hit by the impact of a hard Brexit.’

‘You can understand why there is now mounting pressure for the UK to negotiate new customs arrangements for post Brexit trade with the EU and for companies to work with their industry groups to help shape future trading relations with the EU.’

Canadian Dollar’s (CAD) Gains Tempered by Sliding Oil Prices

Meanwhile the Canadian Dollar’s advance was slowed somewhat today as oil prices dipped below $57 a barrel early on Monday.

The latest drawback on prices was largely prompted by rising US drilling activity and the news that OPEC output levels are likely to increase as Iraq announced that its crude exports rose in September.

However despite the decline, oil has largely held on to its recent gains with the commodity having notched its fifth consecutive weekly gain as the US refineries continue to come back on line after operations were disrupted by Hurricane Harvey earlier in the month.

Crude prices may also make a quick rebound later in the session as well as reports suggest that Libya’s largest oilfield (which is exempt from OPEC output cuts) has been closed since Sunday.

GBP CAD Forecast: UK Construction PMI to Also Stumble?

Looking ahead the GBP CAD exchange rate may slip again on Tuesday as the UK releases its latest Construction PMI, with economists forecasting that building activity will also have tumbled in September, although with the sector only accounting for a relatively small portion of economic growth its impact on Sterling may be largely negligible.

Meanwhile the Canadian Dollar may advance further later this afternoon with the release of Canada’s own manufacturing PMI as some analysts predict that the index will have risen slightly from 54.6 to 54.9 in September.

Current Interbank Exchange Rates

At the time of writing the GBP CAD exchange rate was trending around 1.6589 and the CAD GBP exchange rate was trending around 0.6021.

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