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Pound Canadian Dollar (GBP/CAD) Exchange Rate Fluctuates on Brexit Turbulence and Crude Oil Fall

February 6, 2018 - Written by John Cameron

Brexit Turbulence Prompts Volatility in the GBP/CAD Exchange Rate

The Pound Canadian Dollar (GBP/CAD) exchange rate fluctuated on Tuesday, rising initially in reaction to a drop in crude oil prices but falling later into the day as markets reacted to ongoing issues in the Brexit negotiation process.

In respect to the latter, Sterling continues to remain under the thumb of Brexit-related uncertainty, falling as phase 2 of negotiations continues with very little in the form of progress this week.

UK Prime Minister Theresa May has insisted that the UK will not be part of the EU customs union after Brexit, instead calling for ‘bespoke’ trade deal that would allow free trade between the bloc, and the UK, but also provide freedom for London to negotiate trade deals with foreign nations during the transition period.

UK Brexit Secretary David Davis laid out what the UK is seeking in terms of trade thusly:

‘We want a comprehensive free trade agreement and we want a customs agreement and to make that as frictionless as possible… whilst still giving ourselves the opportunity to make free trade deals with the rest of the world’.

This continues to prove one impasse amongst many, however, with the EU refusing to offer a ‘Canada Plus’ style of deal, and debate still continuing on whether the UK will be subject to new EU laws during the transition period.

Crude Oil Tumbles amid Plummeting US Stock Market - GBP/CAD Exchange Rate Fails to Capitalise

Crude oil prices took a tumble on Tuesday as the broader chaos in the stock market bled into oil futures.

The better-than-expected US employment, wage growth readings and the recent surge for the US Dollar (USD) has helped fuel speculation that the Fed might soon move to tighten monetary policy, thus ending an era of ultra-low interest rates.

This may have prompted the recent correction in the stock market, with analysts proclaiming that the stock market had risen too far, too fast, and was simply ripe for the fall.

Regardless of the cause, the Canadian Dollar initially took the brunt of the drop in crude oil prices, though as the day progressed and the fall stabilised, so too did the ‘Loonie’.

The GBP/CAD exchange rate ultimately failed to capitalise. However.

GBP/CAD Exchange Rate Outlook – Market Focus Shifts to BoE Rate Decision

The Pound Canadian Dollar (GBP/CAD) exchange rate could encounter some volatility on Thursday as investors turn their attention to the looming Bank of England (BoE) rate decision.

Whilst the BoE is not currently expected to raise interest rates at this meeting, there is fresh hope that the accompanying statement will point towards a rate hike as early as May.

The Financial Services Company UBS has forecast as much, with UBS Strategist John Wraith suggesting that there could be a ‘window of opportunity’ for the bank to raise interest rates.

Wraith stated:

‘While we still expect the Brexit process to generate strengthening headwinds for the U.K. economy for a considerable time, the stronger-than-expected outturn for fourth quarter gross domestic product (GDP) and the better momentum the economy starts 2018 with as a result could give the MPC a window of opportunity to raise bank rate by the middle of the year’.

If the bank does indeed point towards a rate hike in May then the GBP/CAD exchange rate will likely surge.

If the bank proves dovish, however, then rate hike hopes will be quelled, an event that could quash the GBP/CAD’s near-term prospects.
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