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GBP to CAD Exchange Rate Rebounds amid Market Risk-Aversion despite Brexit Jitters

March 29, 2019 - Written by Minesh Chaudhari

Despite market uncertainty over how the Brexit process will develop over the coming weeks, the British Pound to Canadian Dollar (GBP/CAD) exchange rate rebounded slightly from its worst weekly levels this morning thanks to weakness in rivals and some stronger than expected UK data. However, Sterling is still on track to fall this week amid Brexit uncertainties.

After opening this week at the level of 1.7729, GBP/CAD saw mixed movement for most of the week, slipping before briefly touching a fresh 2019 high of 1.7784 on Wednesday. Since that high though, Brexit uncertainties have only worsened and GBP/CAD has tumbled.

GBP/CAD briefly touched on a weekly low of 1.7477 this morning, but at the time of writing was trending closely to the level of 1.7556 again. The pair is on track to see notable losses overall this week.

This is despite weaker market demand for risky trade-correlated currencies, though the trade-correlated ‘Loonie’ did see a small boost in demand this morning due to perceived optimistic developments in US-China trade talks.

GBP Exchange Rates Fluctuate on Brexit Uncertainties and Stronger UK Growth Data

For most of the week, the Pound’s movement has been limited as uncertainty over the direction of the Brexit process has left investors hesitant to make any big moves on the British currency.

Uncertainties over how Brexit will unfold have only deepened throughout the week.

Wednesday’s first ‘indicative votes’ process in UK Parliament ended without any of the amendments being agreed to, showing just how far Parliament was to being able to agree on how Brexit should unfold.

On top of that, Prime Minister Theresa May said she would resign from her role, allowing someone else from the Conservative Party to take control of the process if her Brexit deal passes.

This was done to get critics from within the Conservative Party on board with her plan, and some backbenchers have come around to the deal as a result. However, analysts predict there is still not enough support from the DUP and Labour Parties for the deal to pass.

Economists at Goldman Sachs believe the uncertainties of Brexit will widen further if the deal is defeated again. According to Goldman Sachs:

‘We would expect a more accentuated skew in the distribution of Brexit outcomes — towards a softer, later UK withdrawal from the EU — but we would also expect that skew to be accompanied by a substantial increase in the likelihood of a snap general election,’

While Brexit uncertainties and concerns about the government’s future weighed on Sterling, the Pound’s losses were limited today by some stronger than expected UK growth data.

Britain’s final Q4 Gross Domestic Product (GDP) growth rate came in at 1.4% year-on-year, rather than slowing to the projected 1.3%.

CAD Exchange Rates Buoyed by US-China Trade Hopes

Following mixed movement for most of the week on market risk-aversion, demand for the Canadian Dollar was a little stronger towards the end of the week.

Perceived developments in US-China trade negotiations helped to make risky trade-correlated currencies like the Canadian Dollar more appealing, and this limited the Pound’s recovery potential.

However, the Pound was still able to recover slightly amid lingering risk-aversion.

Investors were hesitant to take risks for most of the week due to concerns that falling bond yields indicated that major economies could perform even slower than expected or even see recession.

On top of this, major Central Banks like the Reserve Bank of New Zealand (RBNZ) have taken more dovish tones, weighing on risk-sentiment.

Due to this and a lack of particularly impressive Canadian data, the Pound to Canadian Dollar exchange rate was able to rebound a little more easily this morning.

However, overall risk-sentiment improved a little today and helped the Canadian Dollar to hold gains ahead of this afternoon’s anticipated Canadian growth stats.

GBP/CAD Exchange Rate Forecast: Brexit Deal Vote and Canadian Growth Report in Focus

Today, the UK government is expected to attempt to push its Brexit deal through Parliament again – but just the Withdrawal Agreement rather than the combination of Withdrawal Agreement and Political Declaration that had been attempted before.

Still, analysts doubt the deal is popular enough to pass, and if the deal is blocked one more time it is perceived as unlikely that the deal will return.

If the deal is blocked again today, the path the UK takes on Brexit could change for good, and this could lead to numerous potential outcomes including a no-deal Brexit or an even softer Brexit.

Essentially, Pound uncertainty would rise, so unless there is particularly optimistic Brexit news the Pound is unlikely to have much reason to recover before markets close this week.

However, if upcoming Canadian data disappoints investors it could make it easier for GBP/CAD to recover.

Friday afternoon will see the publication of Canada’s January Gross Domestic Product (GDP) growth rate stats.

If Canadian growth continues to contract, despite being predicted to lighten to a stagnant 0.0%, the Canadian Dollar could see a late-week plunge and the Pound to Canadian Dollar exchange rate could recover as investors await more Brexit news next week.
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