GBP to CAD Exchange Rate Recovers from Drops on Brexit Hopes

December 5, 2017 - Written by Toni Johnson

STORY LINK GBP to CAD Exchange Rate Recovers from Drops on Brexit Hopes

Due to concerns about Brexit progress being blocked by Northern Ireland’s DUP, the British Pound to Canadian Dollar exchange rate briefly tumbled on Tuesday. Towards the end of the day Brexit concerns softened and the Pound recovered slightly.

After advancing slightly from 1.6946 to 1.7088 last week and having its strength limited by strong Canadian data, GBP/CAD briefly dipped back to last week’s lows on Tuesday. The pair trended nearer the week’s opening levels towards the end of Tuesday’s European session

GBP Volatile as Irish Border Uncertainties Remain

The Pound saw wide fluctuations again on Tuesday, briefly plunging across the board on concerns that UK EU Brexit negotiations would be notably delayed due to disagreements on the Irish border.

The border between Ireland and Northern Ireland has become a major point of contention in Brexit negotiations, as both Ireland and NI would like a soft border but Britain intends to leave the EU’s single market and customs union.

UK officials briefly proposed that Northern Ireland keep EU rules in order to maintain its soft border, but the nation’s DUP Party opposed the plans, stating it wished for NI to be treated the same as the rest of Britain.

According to Connor Campbell, analyst from SpreadEx;

‘The Tories are really taking a sticky tape and cardboard approach to government, patching over problems – ie. bringing the DUP in to prop-up their parliamentary majority – with seemingly little to no foresight into what issues such solutions might cause in the future.

So it should come as no surprise that, like so many other things in the past few months, the DUP deal has come to bite May in the behind, with the right-wing party scuppering an agreement on the Irish border – where Northern Ireland would be allowed to stay in the customs union and single market – that could have potentially unlocked trade talks between the UK and EU.’

On top of this news, Britain’s latest services PMI from Markit was disappointing. The print was forecast to slip from 55.6 to 55, but instead dropped to just 53.6 in November’s results.

However, as UK and EU officials remain optimistic that a deal on Brexit divorce agreements is still likely to be reached within the coming days, the Pound has been able to avoid its worst levels and recovered from its lows later in the day.

CAD Firms Ahead of Bank of Canada (BOC) Decision

While the Canadian Dollar has been unable to hold its best levels against the Pound this week, the ‘Loonie’ is still seeing solid performance overall.

Rising prices of oil, Canada’s most lucrative commodity, as well as strong Canadian growth data from last Friday has made the Canadian Dollar more appealing.

Canadian Dollar traders were encouraged on Tuesday by Canada’s October trade balance update, which met expectations of C$-2.7b and came in at C$-1.47b.

On top of this, investors are anticipating Wednesday’s upcoming Bank of Canada (BOC) monetary policy decision, in the hopes that Canada’s recent growth and job market data will encourage more hawkishness from the bank.

According to Dina Ignjatovic from TD Bank, speaking about Canada’s trade report;

‘This report, combined with last week's stellar employment report, will be looked favorably upon by the data dependent Bank of Canada,’

GBP/EUR Forecast: Bank of Canada (BOC) Meeting in Focus

The Bank of Canada (BOC) has recently been cautious about the monetary policy outlook due to some underwhelming Canadian inflation stats, but recently strong Canadian growth data may help to change the bank’s tone.

Investors are hoping that thanks to strong Canadian growth and job market data, the BOC is more likely to hint at plans to hike Canadian interest rates in 2018.

If the bank takes a more hawkish stance in Wednesday’s policy decision, the Canadian Dollar could see stronger demand and push GBP/CAD down.

However, Brexit developments will also be highly influential in Pound to Canadian Dollar trade in the coming days.

Any signs that the UK government can reach an agreement on the Irish border with Northern Ireland as well as the EU would boost hopes for a deal to be reached before the EU summit on the 14th.

If the Irish border issue remains unsolved in the coming days however, the Pound outlook could weaken as investors become more anxious about the possibility of Brexit talks being delayed further.

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TAGS: Pound Canadian Dollar Forecasts