GBP CAD Exchange Rates Neck and Neck before UK GDP and BoC Rate Decision

October 24, 2017 - Written by Frank Davies

STORY LINK GBP CAD Exchange Rates Neck and Neck before UK GDP and BoC Rate Decision

A quiet data day has left the Pound Canadian Dollar neck and neck this morning as markets await tomorrow’s UK GDP figures and the Bank of Canada’s (BoC) October rate decision.

GBP Climbs as Theresa May Dinner Rumours are Dispelled

The Pound is currently climbing on the back of renewed positive Brexit sentiment, with German Chancellor Angela Merkel and a number of other EU leaders dismissing leaked claims that the UK Prime Minister Theresa May begged EU negotiators for a deal.

President of the European Commission Jean-Claude Juncker denied all claims that the PM was in bad shape, instead declaring that she was in ‘good shape’ and that she was ‘fighting’ as her duties required.
Juncker stated:

‘I am really surprised – if not shocked – about what has been written in the German press, and of course repeated by the British press. Nothing is true in all of this. I had an excellent working dinner with Theresa May. She was in good shape, she was not tired, she was fighting as is her duty so everything for me was OK’.

Market demand for the Pound had been slightly hindered by the possibility that May’s position in negotiations had so severely weakened – something that could potentially lead to a worse Brexit deal or indeed a leadership challenge within the Conservative Party; both things that would destabilise the currency.

With the rumours dispelled, however, market demand returned to the Pound, renewed by last week’s assertions that progress had been made and that trade talks could begin as soon as December.

UK GDP on the Horizon – How Will GBP CAD Exchange Rates be Affected?

Tomorrow will feature the release of the UK’s GDP figures – an important release that could decide if the Bank of England (BoE) will move for a rate hike in November or delay until UK domestic data proves more positive.

Markets are currently predicting the year-on-year UK GDP estimate to remain steady at 1.5%, with the month-on-month figure forecast to remain steady at 0.3%.

If this occurs then the prospect of a November rate hike might be rescued – though with UK wage growth and retail sales proving disappointing, the possibility still remains questionable.

BoE Policymaker Jon Cunliffe shared a cautious sentiment recently, asserting that a gradual, slow process of rate hikes could be warranted only if the bank’s economic assessment is proven to be valid.
Cunliffe stated:

‘For me, when that process starts is a more open question and my decision will be based in large part on whether I see domestic inflation pressures and what I start to see happening to pay in the economy’.
If the GDP prints below forecasts then GBP CAD will likely come under pressure.

GBP CAD Forecast: Canadian Rate Hike Prospects Dwindle

The Pound Canadian Dollar exchange rate is liable to become increasingly volatile tomorrow, depending on the outcome of the BoC’s October interest rate meeting.

The ‘Loonie’ itself has gained some support today, though it’s hard to say exactly how much of this is simply a result of a jump in crude oil prices – a jump catalysed by a decline in oil exports from Iraq and the projected fall in US commercial oil stocks – or anticipation of a rate hike tomorrow.

A recent poll on Reuters has priced the chance of an October rate hike from the Bank of Canada at a measly 17.2%, but other sources still attach a 40% chance of another rate hike before the year ends.

If Stephen Poloz, Governor of the bank espouses caution and uses the meeting to signal a pause for the Bank, then GBP CAD will likely climb. If a rate hike does occur, however, then GBP CAD could come under significant pressure.

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