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GBP to CAD Exchange Rate Tumbles as Fears of No-Deal Brexit Return

May 15, 2019 - Written by Ben Hughes

Despite a lack of particularly supportive Canadian data in recent sessions, the British Pound to Canadian Dollar (GBP/CAD) exchange rate continues to tumble as Brexit uncertainties keep worsening while Canadian Dollar investors remain hopeful that the Bank of Canada (BoC) will avoid taking a dovish tone on monetary policy.

While last week’s GBP/CAD slump from 1.7680 to 1.7436 was limited due to fresh US-China trade war fears, the pair has fallen significantly from last Monday’s monthly high of 1.7723, and has continued to tumble this week so far.

While Brexit hopes briefly took GBP/CAD higher at the beginning of the week, the pair has since slipped lower. At the time of writing on Wednesday afternoon, GBP/CAD was trending near a low of 1.7303, which was the worst level for the pair in over two months – since February.

GBP Exchange Rates Fall on Fresh Perceived Risk of No-Deal Brexit

In recent months, market hopes that a worst-case scenario no-deal Brexit will be avoided have contributed to keeping the Pound buoyed well above the lows it saw in late 2018.

However, the Pound has been unable to keep climbing as the Brexit process continues to be delayed and uncertainty over how the process could unfold persists.

On top of this, while hopes that a no-deal Brexit have been avoided keep the Pound buoyed, such an outcome is still a possibility.

Today, the UK government announced plans to hold a fourth Parliamentary vote on its unpopular Brexit bill in June. The deal has been blocked by Parliament three times already, and analysts are highly doubtful that it will succeed in its fourth attempt either.

Amid concern that the bill may fail for a fourth time and with no alternative solution still in sight, UK officials have renewed warnings to MPs that supporting the government Brexit plan was the only way to stop a no-deal Brexit completely.

According to Wednesday comments from Brexit Minister Stephen Barclay:

‘There is an under appreciation that no deal can still happen,

If the House has not passed the Withdrawal Agreement Bill then there are growing voices in Europe, not least the French, who want to move on to other issues,

So there is no automatic right of an extension and in that scenario it would then be a question for the House whether it voted for a no deal and none of can sit here and definitively answer that question,’

CAD Exchange Rates Resilient as Data Fails to Knock Bank of Canada (BoC) Interest Rate Hike Bets

Despite today’s Canadian inflation data falling short of expectations in one notable print, the Canadian Dollar remained fairly sturdy today and has been able to sustain further gains versus a weak Pound.

Canadian inflation slowed from 0.7% to 0.4% month-on-month in April as expected, while the yearly figure also met forecasts and improved from 1.9% to 2.0%.

However, April’s core Canadian inflation rate unexpectedly slowed from 1.6% to 1.5% rather than rising to the forecast 1.8%.

Despite core inflation slipping though, the Canadian Dollar was able to climb versus the Pound as investors remained generally optimistic that the Bank of Canada’s (BoC) monetary policy outlook had not been notably impacted.

According to Derek Holt, Vice President of Capital Markets Economics at Scotiabank:

‘The takeaway here is that inflation is broadly in line with the Bank of Canada’s target on the back of some pretty strong recent activity measures for the Canadian economy,’

Markets are betting on interest rate hikes from the BoC over the next year, and the BoC continues to indicate as much.

Still, some analysts remain anxious that global economic slowdown could hinder the bank’s hawkishness so markets are sure to keep carefully watching Canadian data.

GBP/CAD Exchange Rate Forecast: Canadian Manufacturing Data Ahead

Will the Canadian Dollar continue to see support despite today’s weak inflation data? Investors may become less optimistic about Canada’s economic outlook if other upcoming Canadian data disappoints as well.

With no notable UK data due for publication before the end of the week, developments in politics, as well as upcoming Canadian data, are most likely to influence the Pound to Canadian Dollar exchange rate.

Thursday will see the publication of Canada’s March manufacturing sales results, which will give investors a better idea of how Canada’s factory sector is performing amid global trade uncertainties.

ADP’s April employment change report could be fairly influential on Friday as well.

Overall though, unless Canadian data continues to disappoint, GBP/CAD may struggle to recover this week’s losses so far.

Brexit and UK political uncertainties continue to weigh on the Pound, giving investors little reason to buy the Pound to Canadian Dollar exchange rate.
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