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Pound Canadian Dollar Exchange Rate Falls from Weekly Best as Brexit Uncertainties Reignite

November 14, 2018 - Written by James Fuller

Concerns that UK Prime Minister Theresa May could struggle to find enough domestic support to pass a UK-EU Brexit deal into UK law left the British Pound to Canadian Dollar (GBP/CAD) tumbling on Wednesday, despite lower oil prices weighing on demand for the oil-correlated Canadian Dollar.

Since opening this week at the level of 1.7130, GBP/CAD briefly slumped to its worst levels since the beginning of the month – 1.6954. On Tuesday, GBP/CAD recovered strongly on Brexit speculation and weaker oil prices and touched a weekly high of 1.7241. The pair weakened again on Wednesday though and trended closer to the week’s opening levels at the time of writing.

GBP Volatile as Investors Anticipate Bigger Brexit News

The Pound fluctuated widely on Wednesday morning as investors anticipated a Brexit meeting from UK Prime Minister Theresa May’s government cabinet, due to be held in the afternoon.

On Tuesday, Sterling briefly surged in reaction to news that the UK and EU had agreed to a draft text for a Brexit bill, following months of negotiation deadlock.

It was even reported that the UK and EU had reached an agreement regarding the issue of Ireland’s border, which has been the primary cause of deadlock for almost a year now.

However, the Pound’s gain from this news was limited as concerns rose that there was not enough support in the UK to pass such a bill into law.

If this bill is blocked it is unlikely that another bill would be negotiated in time, which could leave the UK and EU hurtling towards a worst-case scenario ‘no-deal Brexit’ in 2019.

Investors feared that ministers could resign in opposition of May’s Brexit plan following the upcoming cabinet meeting. If there are resignations, it could worsen concerns that the deal will not impress UK Parliament either.

While fears that UK Parliament could still block a Brexit deal was the primary cause of Pound losses on Wednesday morning, Sterling was weighed further by the latest UK Consumer Price Index (CPI) inflation report.

UK inflation fell short of expectations in both major prints, remaining at 0.1% month-on-month and 2.4% year-on-year in October despite being predicted to edge higher.

The data weighed slightly on the perceived chances that the Bank of England (BoE) would hike UK interest rates again soon. However, according to analysts like Laith Khalaf from Hargreaves Lansdown Brexit uncertainty is currently a much bigger influence on the bank outlook:

‘Brexit is still the elephant in the room when it comes to the future path of inflation, and consequently of monetary policy. That’s because the Pound now waxes and wanes with the Brexit negotiations, and that has a big impact on how much UK consumers pay for imported goods,

A disorderly Brexit would see the Pound fall and inflation rise, and if you believe [Bank of England governor] Mark Carney, that could mean a rate hike or a cut.’

CAD Sold as Oil Prices Slump

Prices of oil, Canada’s most lucrative commodity, have been sold since Tuesday. This has led investors to sell the oil-correlated Canadian Dollar too.

The latest oil selloff came in reaction to comments from US President Donald Trump.

Following news that Saudi Arabia wished for OPEC to agree to cut oil production by 1m barrels per day in order to stimulate oil prices and demand, Trump warned against the plan.

Trump’s warning caused market doubt that a plan would be agreed by OPEC and OPEC allies, leaving oil prices plunging again on fears of oversupply and low demand.

Weaker oil prices limited the Canadian Dollar’s gains against a weak Pound on Wednesday, as the Canadian currency has not seen any notable support from data this week thus far.

GBP/CAD Forecast: Brexit Outlook to Drive Currency Movement

The coming sessions and weeks are likely to be significant for the Pound outlook, with developments in the Brexit process only likely to become increasingly influential.

If there are resignations in UK Prime Minister Theresa May’s government cabinet following Wednesday’s Brexit meeting, or reaction to the meeting is perceived as negative, the Pound could plummet as concerns about the Brexit deal being blocked would worsen.

On the other hand, if the deal is received positively by UK officials it may bolster confidence about the deal’s chances of being passed into UK law. This would leave Sterling stronger.

UK Prime Minister Theresa May is also expected to make a Brexit statement on Thursday, which could prove influential if it or reaction to it is surprising to investors.

Investors are also hoping that a UK-EU Brexit summit can be successfully held before the end of November, so news regarding this may be influential too.

As for the Canadian Dollar, oil price developments and Thursday’s Canadian ADP employment change stats may also influence the Pound to Canadian Dollar exchange rate.
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