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GBP CAD Exchange Rate Tumbles as Brexit Talks Delayed until February 2018

December 8, 2017 - Written by Frank Davies

The Pound Canadian Dollar (GBP CAD) exchange rate fell on Friday as markets responded to claims from various EU officials that the next phase of talks will not be able to take place until February 2018.

No Brexit Trade Talks Until February 2018 – GBP CAD Tumbles

EU officials have stated that no discussions on a trade deal can take place until February 2018 at the earliest, with the EU once again insisting that it needs ‘more clarity’ from UK Prime Minister Theresa May for a fully agreed vision of the future.

Whilst May was initially praised by Ministers in London on Friday for finally resolving the impasse that had existed for some 6 months, the reality of the agreement (and a seeming lack of clarity therein) has now set in.
The EU has asserted that suggestions from London have been ‘cherry-picking’, with the UK not having ‘been particularly specific’.

One official surmised:

‘It has set out a number of red lines, but what the UK has been saying so far still entails a number of internal contradictions and does not seem entirely realistic to us. The ambition is to do it quickly [regarding trade talks]. But that has to involve, I think, more clarity from the UK side. I read in the press that the cabinet has not yet discussed this matter. And in light of that maybe more work is needed on the UK side before we can really engage in this.’

This news quickly curbed all previous excitement for the Pound, leaving GBP CAD tumbling as markets became apprehensive that trade talks might delayed far longer than previously thought.

Nonetheless, today’s news that ‘sufficient progress’ has been made is in itself a step forward, with the Irish border issue seemingly resolved enough in the eyes of the EU to warrant progress.

CAD Exchange Rates Soar on Rising Oil Prices and Robust Domestic Data

Demand for the ‘Loonie’ outpaced the Pound on Friday, with massive support coming from higher crude oil prices and robust domestic data.

Crude oil, Canada’s primary export, received a significant boost as Chinese imports increased by 9.01 million barrels per day in November – marking the second highest amount on record and demonstrating that demand continues to boom.

Beyond this, new threats of a strike in Africa’s largest oil exporter; Nigeria, also drove up prices and helped bolster the Canadian Dollar.

In other news, Canadian housing starts rose drastically in November, with the seasonally adjusted rate climbing to 252k, up from October’s 222k and the forecast of a drop to 213k.

Combined, the ‘Loonie’ was able to climb out of its recent rate decision induced hole, easily capitalising against the currently weak Pound.

GBP CAD Forecast: Could UK Rate Hike Prospects Increase in the Near Term?

Whilst markets are still digesting the recent dovish decision of the Bank of Canada (BoC) to leave interest rates unchanged, anticipation is beginning to build once again for a hawkish Bank of England (BoE) in the year ahead.

According to a poll by the BoE, the British public expects inflation over the medium term to rise; potentially paving the way for early rate hikes in 2018.

The poll revealed that inflation is expected to rise to 2.9% over the next two years, up from the previous prognostication of 2.7%.

Over a five year period, expectations are that it will rise to 3.5%.

If soaring inflation does indeed prove harder to tackle than the BoE had previously anticipated, then a rate hike might be warranted sooner than later, a prospect that could see demand for the Pound returning.
Markets will nonetheless be watching next week’s UK consumer price index figures for a better idea of clarity, with stagnation or a rise liable to drive hawkish sentiment higher.

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