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GBP to CAD Exchange Rate Rebounds Following Last Week’s Plummet on Canadian Growth

April 1, 2019 - Written by Ben Hughes

Last week saw a major plunge in the British Pound to Canadian Dollar (GBP/CAD) exchange rate, as mounting Brexit fears combined with a surge in demand for the Canadian Dollar left the pair nearer its worst levels since February. This week so far though, GBP/CAD has put in a fairly sturdy rebound as investors cool from last week’s movement.

After opening last week at the level of 1.7730 and testing highs of around 1.7779 in the first half of the week, GBP/CAD spent the latter half of the week plummeting. GBP/CAD shed almost three cents on Thursday and Friday alone, briefly touching a March low of 1.7355 on Friday before closing the week near the level of 1.7402.

This week so far though, investors have been buying the Pound from its lows in hopes that a Brexit deal can be made.

The Canadian Dollar’s movement has cooled since last Friday’s surge, but the currency has not been able to avoid losses versus a recovering Pound even despite higher market demand for safe haven currencies.

GBP Exchange Rates Advances on Brexit Speculation despite Uncertainties

Investors sold the Pound towards the end of last week, as Brexit uncertainties intensified and questions only piled up further with a mere two weeks until the EU’s new Brexit date of the 12th of April.

Last week’s Brexit developments didn’t offer up much in the way of clarity. The first round of Brexit indicative votes ended with every proposed amendment being votes down, and the Pound weakened amid a lack of any solid path forward

Prime Minister Theresa May also indicated she was willing to step down from her role in order to bolster support for her Brexit deal from hard Brexit-supporters.

Despite this though, the deal once again failed to pass through Parliament and investors turned towards today’s second round of indicative votes.

The Pound advanced ahead of the votes on speculation that an amendment for an even softer Brexit was gaining support, but it was also supported by the latest UK manufacturing PMI data from Markit, which beat expectations.

UK manufacturing was expected to slow to just 51, but instead rebounded to a solid 55.1 due to Brexit stockpiling bolstering factory activity last month.

According to Rob Dobson, Director at IHS Markit:

‘Manufacturers reported a surge of business activity in March as companies stepped-up their preparations for potential Brexit-related disruptions. Output, employment and new orders all rose at increased rates as manufacturers and their clients raced to build safety stocks. Stocking of finished goods and input inventories surged to new survey-record highs’

CAD Exchange Rates Cool Following Friday’s Surge amid Weak Manufacturing Data

On Friday, Canadian Dollar investors were highly impressed by Canada’s January Gross Domestic product (GDP) growth rate data from January, which unexpectedly rebounded more strongly than expected.

Canadian growth was forecast to edge just slightly higher from -0.1% to 0.0%, but instead the figure rebounded to a positive figure of 0.3%.

The news, as well as stronger prices of oil towards the end of last week, caused a surge in market demand for the Canadian Dollar. Oil is Canada’s most lucrative commodity and the commodity’s strength often supports CAD movement.

However, while oil prices remained steady today and investors continued to find relatively risky trade-correlated currencies like the Canadian Dollar appealing due to some strong Chinese data, the Canadian Dollar was weakened by domestic data today.

Monday’s American session saw the publication of Canada’s March manufacturing PMI from RBC. It was forecast to improve from 52.6 to 52.8, but instead unexpectedly slowed to just 50.5 putting it dangerously close to stagnation.

The Canadian Dollar fell further from last Friday’s highs following the publication of the report.

GBP/CAD Exchange Rate Forecast: Brexit Developments and Risk-Sentiment in Focus

The Pound’s movement has been driven almost exclusively by Brexit speculation and developments in recent sessions, and that appears unlikely to end any time soon with this week expected to be another major one for Brexit.

This evening, UK Parliament will hold its next round of ‘indicative votes’ on how to proceed with Brexit, and speculation is rising that Parliament could vote in favour of an amendment for an even softer Brexit.

If this happens, the government is not obligated to follow it. However, it is likely to put pressure on the government regardless, and the perceived chances of a general election are rising too.

This could mean further uncertainty ahead for the Pound, and developments in the government and in the Brexit process will continue to drive Sterling in the coming sessions.

As for the Canadian Dollar, no more notable Canadian data will be published until nearer the end of the week, leaving the Canadian Dollar reacting to developments regarding risk-sentiment in the coming sessions.

If the Reserve Bank of Australia (RBA) takes a more dovish tone overnight, the Canadian Dollar may weaken as risk-sentiment will fade. Any shifts in oil prices or US-China trade developments could also influence the Pound to Canadian Dollar exchange rate.
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