GBP to CAD Exchange Rate Gains Limited as Brexit Uncertainties Remain

February 26, 2018 - Written by James Fuller

STORY LINK GBP to CAD Exchange Rate Gains Limited as Brexit Uncertainties Remain

While a speech from UK Labour Party Leader Jeremy Corbyn boosted ‘soft Brexit’ hopes on Monday morning, the British Pound to Canadian Dollar (GBP/CAD) exchange rate’s gains were limited as the UK government showed no signs of being pressured by the Labour Party’s stance on EU customs unions.

‘Soft Brexit’ hopes and Bank of England (BoE) speculation initially took GBP/CAD from 1.7594 to a high of 1.7776 last week but due to strong Canadian data the pair ended the week at the level of 1.7638. On Monday the pair touched on a high of 1.7794 but generally trended closer to 1.7720.

GBP Gains Limited Despite UK Labour Party’s ‘Soft Brexit’ Stance

Sterling surged on Monday morning as investors digested the Brexit stance of Britain’s opposition Labour Party.

Labour Leader Jeremy Corbyn’s stance had been unclear in recent months, but on Monday Corbyn stated that Labour would intend to keep Britain in an EU customs union post-Brexit. He ruled out full single market access but would aim to keep some close relationship to the single market;

‘Britain will need a bespoke relationship of its own. Labour would negotiate a new and strong relationship with the single market that includes full tariff-free access and a floor under existing rights, standards and protections. That new relationship would need to ensure we can deliver our ambitious economic programme.’

Sterling was also supported on Monday thanks to comments from Bank of England (BoE) Deputy Governor Dave Ramsden. Ramsden told the Sunday Times that he could see UK interest rates needing to be tightened again ‘somewhat sooner rather than somewhat later’.

As Ramsden is typically among the BoE’s more dovish members, his seemingly hawkish comments boosted market confidence that the BoE was preparing to tighten UK monetary policy at a faster pace than previously expected.

However, the Pound was unable to hold its gains towards the end of the day, as the UK government showed no signs of being influenced by the Labour Party’s stance.

According to a statement from 10 Downing Street on Monday afternoon;

‘The government will not be joining a customs union. We want to have the freedom to sign our own trade deals and to reach out into the world.’

CAD Stronger Following Unexpectedly High Inflation Rates

Friday saw the publication of Canada’s Consumer Price Index (CPI) results from January, which beat expectations in two major prints and boosted market demand for the Canadian Dollar.

Canada’s month-on-month inflation rate was forecast to have improved from -0.4% to 0.4%, but instead rose to 0.7%. The year-on-year figure was forecast to slow to 1.4% but only slipped from 1.9% to 1.7%.

January’s yearly core inflation rate remained at 1.2% as forecast.

It followed last week’s disappointing Canadian retail sales results and wholesale sales stats, which made investors concerned that Canada was not growing as much as the Bank of Canada (BOC) projected.

Investors remained concerned about Canada’s economic outlook ahead of the nation’s latest Gross Domestic Product (GDP) results, due this coming Friday.

GBP/CAD Forecast: Brexit Speculation and Canadian Data in Focus

While Britain’s economic calendar will be a little quieter this week, there could still be plenty for Pound investors to react if Brexit developments or Bank of England (BoE) comments surprise investors.

Any signs that the UK government is being pressured to soften its Brexit stance due to the stances of other Parties, such as the Labour Party, could make the Pound more appealing.

However, if the UK government does not give satisfactory clarity on its Brexit position, the uncertainty could weigh heavily on Sterling appeal.

As for data, Wednesday will see the publication of Britain’s February consumer confidence survey from GfK. Towards the end of the week, Markit will publish its UK manufacturing and construction PMIs from February.

Canadian Dollar investors will be more focused on data, with Canada’s final Gross Domestic Product (GDP) results of 2017 due for publication on Friday. December and Q4 growth results will be published.

As underwhelming Canadian retail sales data caused concerns that Canada’s economy may not have grown as much as expected towards the end of last year, any surprises in the data could influence a shift in Canadian Dollar movement.

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