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GBP to CAD Exchange Rate Climbs on Brexit Hopes Despite Risk-Sentiment

December 31, 2018 - Written by David Woodsmith

Despite rising market confidence that tensions between the US and China were lightening, the British Pound to Canadian Dollar (GBP/CAD) exchange rate saw modest gains on Monday morning. Brexit speculation helped Sterling to gain, despite the Canadian Dollar finding some support in slightly stronger market risk-sentiment.

Last week was a volatile week for GBP/CAD. The pair largely trended with an upside bias after opening the week at the level of 1.7173 and closed the week near the level of 1.7310. However, GBP/CAD was not able to hold the week’s best levels as a lack of Brexit optimism limited Sterling appeal.

GBP Exchange Rates Firm on Hopes that ‘No-Deal Brexit’ Can Be Avoided

For much of the past month, the Pound has been throttled by Brexit uncertainties and UK political turmoil as it became clear that UK MPs would not support UK Prime Minister Theresa May’s long-negotiated Brexit withdrawal plan.

Without the support of UK Parliament, the negotiated withdrawal plan, which would lead to a soft Brexit, cannot enter UK law.

This has significantly worsened the risk of a worst-case scenario ‘no-deal Brexit’ taking place when the UK leaves the EU on the 29th of March – now just under three months away.

A ‘no-deal Brexit’ would result in the UK suddenly losing its close connection to the EU, potentially threatening a significant cliff-edge-style impact to UK businesses and services.

As a result, a weekend report claiming that a cross-party group of senior Conservative and Labour Party MPs were looking to force ways to avoid a ‘no-deal Brexit’ reassured investors slightly on Monday.

The report, from The Observer, said that the senior ministers were looking to force the UK government to delay the formal Brexit date in March in order to avoid a ‘no-deal Brexit’, in the event that her Brexit plan is defeated in UK Parliament.

The vote on May’s Brexit plan is expected to be held in the coming weeks.

According to Labour Party Brexit spokesman Keir Starmer, the closeness between the Parliament vote and the projected Brexit date was already cutting it close:

‘If the Prime Minister’s deal is voted down in early January, then we will be just nine weeks away from the date we are due to leave the EU,

If the deal is rejected, Parliament will need to have a very serious debate about how to protect the economy from a no-deal scenario and at this stage nothing should be ruled out.’

CAD Exchange Rates Avoid Losses on Rising Risk-Sentiment

The Canadian Dollar’s losses versus the Pound were limited on Monday. The Canadian Dollar may have seen even further losses if not for market demand for riskier trade-correlated currencies.

Market risk-sentiment rose since last week, on further signs that trade tensions between the US and China were lightening and the nations were getting closer to reaching progress in negotiations.

This made investors more willing to buy riskier trade-correlated currencies like the Canadian Dollar. As a result, GBP/CAD’s gains were more modest than other Pound pairings today.

On top of this, risk-sentiment was also bolstered by market speculation that commodity trade could improve in the coming months.

Prices of oil, Canada’s most lucrative commodity, plummeted in recent months and put oil prices on track to register its first yearly decline since 2015.

This kept significant pressure on the Canadian Dollar recently, and kept even a broadly weak Pound from falling against it throughout the past month.

GBP/CAD Exchange Rate Forecast: Canadian Data and Oil Prices Could Limit Strength

The Pound to Canadian Dollar exchange rate is climbing today, but its bullishness may not continue for the rest of the week.

There is not expected to be any major Brexit development until at least next week, when UK Parliament reconvenes for 2019 and UK Prime Minister Theresa May’s Brexit plan returns to debate.

The vote on the Brexit plan will be held in the following weeks too. Until then, the Pound could be driven by speculation but speculation alone is unlikely to significantly alter the highly uncertain outlooks for the UK economy and Sterling.

As a result, the Canadian Dollar may be more likely to drive GBP/CAD towards the end of the week.

Markets will reopen on Wednesday following the New Year’s Day holiday, and Canadian manufacturing PMI data from December will be published.

Friday’s Canadian job market report could be even more influential. If Canadian data impresses investors it could bolster Canadian economic sentiment and Bank of Canada (BoC) interest rate hike bets.

Of course, if oil prices begin to rebound further following recent losses or if global trade jitters continue to lighten, risk-sentiment may also keep pressure on the Pound to Canadian Dollar exchange rate.
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