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GBP CAD Slides as Construction in the UK Contracts

October 3, 2017 - Written by John Cameron

The Pound Canadian Dollar exchange rate stumbled today as markets reacted to a disappointing UK Markit construction PMI and revelations from the current Conservative Party Conference in Manchester.

UK Construction Contracts for the First Time in Over a Year – GBP Devalued

Britain’s construction sector contracted for the first time in over a year in September - according to the latest Markit IHS report - falling from 51.1 in August to 48.1, far below the forecast of 51.

With readings above 50 demonstrating growth, and readings below 50 demonstrating contraction, the 48.1 print marked the first decline within the construction sector in some 13 months and indeed the fastest contraction in output since July of 2016.

Tim Moore from IHS Markit, shared his sentiment, stating:

‘A shortfall of new work to replace completed projects has started to weigh heavily on the UK construction sector. Aside from the soft patch linked to spending delays around the EU referendum, construction companies have now experienced their longest period of falling workloads since early 2013’.

These disappointing results were primarily caused by a sustained drop in the number of new orders, (with civil engineering and commercial development both significantly sliding) and business optimism, which eased to lows not seen since 2013.

This news quickly drove demand away from the Pound, with markets already reeling from yesterday’s disappointing UK manufacturing print.

GBP Stifled by Apparent Lack of Brexit Progress

Also contributing to today’s poor Sterling performance were comments from EU Chief Brexit Negotiator Michael Barnier, who insisted that not enough progress has been made to begin discussing a future trade deal.
This eventuality has been feared by investors for some time as, lacking sufficient progress to move onto the next phase of negotiations, the UK might be forced into a ‘cliff-edge’ Brexit with no trade talks having taken place whatsoever.

Now that UK Prime Minister Theresa May has asserted that there will be a transition period of two years after the deadline of 2019, however, this fear has been quelled somewhat, though not enough to prevent such news from hurting demand for the Pound.

GBP CAD Outlook Gloomy on Forecast of Poor UK Data

The outlook for GBP CAD has become somewhat gloomy this week with Canadian data prints, (like their Markit manufacturing PMI) proving robust and the UK’s own proving weak.

Tomorrow will feature the UK’s Markit services and composite PMI releases, with the composite predicted to drop from 54 to 53.8 and the services figure forecast to remain stable at 53.2.

Should these readings also disappoint then GBP CAD will likely continue to demonstrate losses into the week with, perhaps, a chance to claw back some losses on Thursday if the speeches from BoE Ian McCafferty or Andy Haldane prove hawkish.

This week features a notable lack of Canadian data, though Friday will see the release of their employment figures.

Canada’s unemployment rate is predicted to remain steady at 6.2%, though a shift above this figure could provide GBP CAD the space it needs to regain some composure.

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