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GBP to CAD Exchange Rate Recovers as Loonie Suffers from Weaker Oil Prices

February 6, 2019 - Written by Minesh Chaudhari

Despite poor UK data and Brexit uncertainties worsening further this week, the British Pound to Canadian Dollar (GBP/CAD) exchange rate has recovered from its worst levels amid fresh Canadian Dollar weakness. Investors sold the Canadian Dollar from its best levels as prices of oil, Canada’s most lucrative commodity, slumped.

Following last week’s plummet from 1.7456 to 1.7124, GBP/CAD was previously on track to see further losses this week but has instead seen mixed movement due to Canadian Dollar weakness. GBP/CAD briefly slumped to a three week low of 1.6988 on Tuesday evening, but at the time of writing had recovered slightly and trended closer to the level of 1.7100.

The Pound was unable to capitalise on the Canadian Dollar’s weakness today, as concerns about Britain’s economy combined with fresh fears of a No-deal Brexit weighed heavily on the British currency.

This meant that the Canadian Dollar’s losses were limited and GBP/CAD was unable to recover all of its weekly losses, despite tumbling commodity prices and weaker market demand for risky trade-correlated currencies.

GBP Exchange Rate Strength Limited with UK Data and Brexit Concerns in Focus

Investors have spent most of the week so far continuing to sell the Pound, as the latest set of UK PMI reports from Markit have fallen well short of expectations and worsened concerns about political jitters and slowing global growth on Britain’s economic outlook.

Analysts are concerned that UK manufacturing could fall into recession, while both construction and even the key services sector printed worryingly close to stagnation in January’s prints.

As the services sector makes up a considerable chunk of Britain’s economic activity, news that services had slumped to just 50.1, just above the 50 point mark of stagnation, was highly concerning to investors.

According to Chris Williamson, Chief Business Economist at Markit, this poor activity could last as long as Brexit uncertainties remain:

‘The survey results indicate that companies are becoming increasingly risk averse and eager to reduce overheads in the face of weakened customer demand and rising political uncertainty. Such worries were in turn most commonly linked to heightened Brexit anxiety, though wider global political and economic factors were also seen to have been taking their toll on demand.’

As a result, Tuesday evening’s Brexit comments from UK Prime Minister Theresa May only served to worsen business uncertainties.

PM May maintained that the government would not delay the formal Brexit date, despite it being under two months away. She also said the possibility of a second referendum lacked support in Parliament.

CAD Exchange Rates Slump on Risk-Aversion and Oil Price Weakness

Despite a lack of notable domestic Canadian news this week so far, investors sold the Canadian Dollar from its best levels today in reaction to various global factors including risk-off movement in markets.

The Canadian Dollar is a relatively risky trade-correlated currency, and it is often correlated to market sentiment for risk-taking and prices of major commodities.

As a result, the latest Reserve Bank of Australia (RBA) news caused investors to sell risky currencies as the bank shocked investors with a dovish tone.

RBA Governor Philip Lowe surprised investors with a dovish tone in a speech overnight, despite the RBA’s seemingly neutral tone in its policy decision at the beginning of the week.

Lowe indicated that an interest rate cut was just as likely now as a rate hike, which was the biggest indication so far that the bank’s outlook had become more dovish.

This weakened market demand for risk-taking, and the risky Canadian Dollar was further pressured by weakness in prices of oil. As oil is Canada’s most lucrative commodity, its weakness this week has deepened the Canadian Dollar selloff.

GBP/CAD Exchange Rate Forecast: Central Bank News and Canadian Job Stats Ahead

The Canadian Dollar has been weaker today on global risk-sentiment and commodity news, but if domestic Canadian news impresses investors in the coming sessions then the Pound to Canadian Dollar exchange rate may still be in for losses this week.

Canadian housing data and January’s Ivey PMI will be published this afternoon, and a speech from Bank of Canada (BoC) Deputy Governor Timothy Lane may also prove influential.

If Lane takes a surprising stance on monetary policy, the Canadian Dollar could see a major shift in direction.

Bank of England (BoE) news on Thursday may prove influential too, but only if the bank takes an unexpected shift in tone or influences the Brexit outlook in some way.

The Pound is much more likely to be influenced by potential Brexit developments, while Canadian Dollar investors are likely to anticipate Friday’s session when key Canadian job market results will be published.

The Pound to Canadian Dollar (GBP/CAD) could avoid losses or even advance this week if Canadian data disappoints investors.
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