GBP to CAD Exchange Rate Holds Near Four-Month-High after Poor Canadian Growth Stats

November 1, 2017 - Written by Minesh Chaudhari

STORY LINK GBP to CAD Exchange Rate Holds Near Four-Month-High after Poor Canadian Growth Stats

Market hopes for developments in the Brexit process, as well as underwhelming Canadian ecostats, have left the British Pound to Canadian Dollar exchange rate easily advancing this week. The pair could climb higher depending on Thursday’s Bank of England (BoE) decision too.

Sterling’s recovery has continued this week, as GBP/CAD opened on Monday at 1.6807 and has gained over three cents so far. The pair hit a four-month-high of 1.7157 on Wednesday and continued to trend near these levels.

GBP Firms on Brexit and Bank of England (BoE) Hopes

Investors have been piling into Sterling in recent sessions on rising hopes that developments in Brexit negotiations could speed up soon, as well as a rising number of analysts who believe that the Bank of England (BoE) will hike UK interest rates as soon as Thursday.

On Tuesday, EU chief negotiator Michel Barnier indicated he was ready for talks to accelerate, bolstering speculation that the first phase of negotiations was almost over.

Markets are hoping that if the second phase of talks begins soon, negotiations for post-Brexit UK-EU trade could begin before the end of the year.

This has left investors much more hopeful that the Brexit process will end with a deal rather than a hard Brexit ‘cliff-edge’ scenario.

Britain’s economic outlook has also improved in recent sessions, thanks to solid data and rising bets that the Bank of England is likely to hike UK interest rates this week.

Wednesday’s UK data largely beat expectations. Markit’s October manufacturing PMI was forecast to come in at 55.8, but instead rose from 56 to 56.3.

Nationwide’s year-on-year house prices report also beat expectations and rose to 2.5%.

These results boosted BoE rate hike bets slightly, but much of the reason for bets of a rate hike have been due to the recent hawkishness of bank officials.

The strong indications from BoE Governor Mark Carney that a rate hike could happen in the coming months have backed him into a corner, according to some analysts.

Kathleen Brooks, research director from City Index stated;

‘Although a hike cannot be guaranteed - Mark Carney is famously referred to as the unreliable boyfriend - it is highly likely that the Bank will hike rates otherwise its credibility could be on the line’

With some suggesting that Carney’s credibility will be affected by the decision, bets of a rate hike have risen and the Pound has been strong.

CAD Strength Undermined by Disappointing Domestic Growth

The Canadian Dollar has seen weak trade recently, as investors begin to doubt that the Bank of Canada’s (BOC) rate hike cycle will continue.

The BOC surprised markets with two rate hikes throughout the summer, but since then domestic inflation has been weaker than expected.

With Canadian inflation falling short of forecasts and the Canadian Dollar recently overvalued, the bank indicated it would go into ‘wait and see’ mode rather than hike rates again soon. The ‘Loonie’ has largely tumbled since then.

On Tuesday, Canada’s August Gross Domestic Product (GDP) disappointed investors, making the Canadian Dollar even less appealing.

Canadian growth was forecast to improve from 0% to 0.1% in August, but instead slipped to -0.1%.

GBP/CAD Forecast: Bank of England (BoE) Decision in Focus

The Pound to Canadian Dollar exchange rate is likely to be driven by UK news for the remainder of the week, as the Bank of England (BoE) holds its November policy decision on Thursday.

Markets are becoming increasingly hawkish on this week’s BoE decision, with many analysts and economists suggesting that the BoE must hike UK interest rates in order to maintain credibility.

If the bank does leave UK interest rates frozen despite the hawkish commentary last month, Sterling will plummet and critics will brand the bank’s forward guidance as unreliable.

On the other hand, some traders still believe the BoE will leave monetary policy frozen due to mixed UK data in recent months. If the bank does leave rates frozen, GBP/CAD will plummet.

Economic data due in the coming days could have a lesser impact on GBP/CAD trade.

UK PMIs for October from Markit, as well as Canada’s October job market report, could influence the Pound to Canadian Dollar exchange rate on Friday.

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TAGS: Pound Canadian Dollar Forecasts