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GBP CAD Slides on Disappointing UK Retail Sales Figures and Lack of Brexit Progress

October 19, 2017 - Written by John Cameron

The Pound Canadian Dollar exchange rate tumbled today as markets reacted to disappointing UK retail sales figures and a clear lack of progress in Brexit negotiations.

UK Retail Sales Disappoint – GBP Encumbered

UK Retail sales suffered a sharp fall in September, according to the Office of National Statistics (ONS) who reported a fall year-on-year from the previous period’s downwardly revised 2.3% to only 1.2% - far below the market expectation of 2.1%.

Analysts have predominantly blamed the poor consumer demand on the surge in inflation, with Andrew Sentence, Senior Economic Advisor to PwC, stating:

‘Prices of goods bought in shops, at petrol stations and online in September were 3.3% up on a year ago, whereas only a year ago they were falling by 1%. This surge in inflation – which mainly reflects the fall in Sterling since the European Union referendum vote – is squeezing consumers and holding back the growth of retail spending in volume terms’.

Also contributing, however, is the UK’s poor wage growth, which continues to be outpaced by consumer prices.

These figures come at a rather pertinent time, in that the Bank of England (BoE) is contemplating whether to raise interest rate at their upcoming policy meeting in November - using domestic data prints to try and assess if the economy could handle a move towards stricter monetary policy.

Because of this, investors have grown skittish about the prospect of a rate hike being called off, decidedly pulling back from the Pound in favour of other currencies.

GBP Fall Cemented as Theresa May Faces Pressure to Walk-Away from Brexit Negotiations

UK Prime Minister Theresa May has announced that she will be discussing ambitious plans with European Union leaders today in an attempt to progress Brexit negotiations in the coming weeks.

This has not, however, been met with much confidence from the investing world, with the on-going negotiation deadlock continually proving to be immovable.

Beyond this, May is now being encouraged by a various politicians and business leaders to walk away if the EU still refuses to start trade talks at the summit – an eventuality that causes a great deal of anxiety for investors because of the proposed uncertainty involved in a ‘cliff-edge’ Brexit.

The proposal would essentially work on the assumption that if the EU refuses to move to trade talks, then the UK will announce its intentions to revert back to World Trade Organisation (WTO) rules on Brexit day (30th of Match 2019), freeing the UK to sign trade deals with other nations like the United States or maybe even coaxing a reaction from the EU that allows progress to be made.

Whilst it is unlikely that May will take this approach, the concern that the impasse remains and no deal is made in time is a real one, with markets and businesses preferring some semblance of certainty rather than a drawn-out limbo.

Exactly how successful May’s talks at the summit are waits to be seen – in the meantime GBP CAD remains encumbered.

GBP CAD Outlook Gloomy on Canadian Inflation Forecast

The data calendar for the Canadian Dollar so far this week has been mostly sparse, though the ‘Loonie’ has found some propulsion on the back of the recent climb in crude oil prices.

Things get a bit more exciting tomorrow, however, with the release of the Canadian inflation figures.

Inflation is currently forecast to climb from 1.4% to 1.7% year-on-year, with a monthly jump from 0.1% to 0.3%.

Such a leap may well prompt the Bank of Canada to resume its rate hike process, putting GBP CAD under even more pressure.

If May’s attendance at the summit talks continues to offer no discernible progress, however, then GBP CAD may be stuck in a rut regardless of movement from the BoC.

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