Pound Rallies against Canadian Dollar as EU Negotiator Accelerates Brexit Talks

October 31, 2017 - Written by Toni Johnson

STORY LINK Pound Rallies against Canadian Dollar as EU Negotiator Accelerates Brexit Talks

On Monday, the Pound made a day-long advance against the Canadian Dollar. GBP opened trading in the region of 1.6853, later closing higher at a rate of 1.6946.

This was brought on by high hopes of a Bank of England (BoE) interest rate hike this week, a sentiment that has been prevailing even today.

Pound Surges after EU’s Barnier Hints at Faster Brexit Talks

As well as being supported by optimism about a rate hike, the Pound has also been aided by recent remarks out of Brussels.

Discussing Brexit possibilities, EU Chief Negotiator Michel Barnier has claimed that the next talks could be scheduled ‘in [the] next few hours or days’.

While a minor statement, it has been interpreted as meaning that Barnier might be looking to press on with Brexit talks to the level of discussing trade and other high-priority issues.

In recent weeks and months, talks have remained stalled on matters such as the Irish border, the rights of EU citizens in the UK and how much the UK pays for a ‘divorce bill’.

UK economic data has been negative but partially unnoticed today; the GfK consumer confidence score for October has fallen from -9 points to -10.

While this has meant a drop in the confidence of those who contribute to UK retail sales and spending, the Pound’s continued strength suggests that traders aren’t too worried.

Canadian Dollar Slides on Unexpected GDP Slowdown

Poor domestic data has sealed the Canadian Dollar’s fate today, with the currency weakening because of GDP disappointment.

The August GDP reading has shown a drop from 0% to -0.1%, instead of rising to 0.1% as predicted.

Giving a rather gloomy summary of the news was Doug Porter, an economist at the Bank of Montreal. Mr Porter said;

‘The run of amazing Canadian economic data is officially over, with growth coming back to reality in hurry’.

Pound Volatility likely in Run-Up to Thursday’s BoE Rate Decision

With the UK confidence data out of the way, the Pound could next be affected by Thursday’s Bank of England (BoE) interest rate decision.

This has been a driving force for a stronger Pound throughout the week and is set to cause high volatility regardless of the outcome.

There still seems to be a 50/50 chance of a rate hike this week, but BoE policymakers have been giving some personal indications of how they could vote in the key decision.

Speaking recently, BoE Governor Mark Carney struck a hawkish stance;

‘Having used up more spare capacity, having seen some evidence of building domestic pressures, the judgement of the majority of the committee is some raise in interest rates over the coming months may be appropriate’.

In a similar line, policymaker Andy Haldane has had a change of heart on interest rates. Haldane had long been an anti-rate hike voter, but has since changed his tune by saying;

‘[A rate hike would show] interest rates getting back to normal, even if the new normal is different than the old normal. This would be a sign of the economy healing. So rather than be a source of fear or trepidation, this ought to be a good news story’.

Further building the chances of an imminent rate hike has been new Monetary Policy Committee (MPC) member Silvana Tenreyro, who has said;

‘We are approaching a tipping point. If the data outturns are consistent with the picture I just described, of an output gap going toward zero, then I’d be minded to vote for a bank rate increase in the coming months’.

On the other side, however, BoE official Jon Cunliffe has given a cautious outlook;

‘I’m very clear interest rates will need to rise, slowly and gradually, over the period. When that process should actually start, that for me is the more open question’.

The Pound’s future movement is fairly easy to determine – if the BoE hikes rates then GBP could rally, while another rate freeze might lead to the GBP/CAD exchange rate plummeting.

The next major Canadian news will come a day later, on Friday. This will consist of the national trade balance result along with employment figures.

Forecasts are for a slight reduction in the trade deficit, along with a rise in employed persons.

If these forecasts are accurate then the Canadian Dollar could rise against the Pound, assuming that any BoE-related volatility has receded by Friday afternoon.

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TAGS: Pound Canadian Dollar Forecasts