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GBP to CAD Exchange Rate Remains Near Post-2017 Worst as Canadian Manufacturing Rises

August 1, 2019 - Written by Tim Boyer

The Canadian Dollar’s strong streak may be set to continue, as this week’s Canadian data has shown modest resilience and has played a part in keeping the British Pound to Canadian Dollar (GBP/CAD) exchange rate near its worst levels in over a year. The primary cause of losses has been no-deal Brexit fears hitting the Pound however.

Since opening this week at the level of 1.6321, GBP/CAD has shed around three cents due to a significant fall on Monday. In the middle of the week, GBP/CAD hit a low of 1.5963 which was the worst level for the pair since 2017. The pair’s recovery has been limited due to lasting weakness in Sterling, and at the time of writing on Thursday had only edged higher to around 1.6021.

This week’s central bank news has also kept GBP/CAD low. Today’s Bank of England (BoE) policy decision saw the bank cutting its UK growth outlook, while the latest Canadian data and Federal Reserve news has dampened market speculation of a more dovish Bank of Canada (BoC).

GBP Exchange Rates Remain Pressured as Bank of England (BoE) Cuts its UK Growth Outlook

In the middle of the week, the Pound saw a brief recovery. However, this was largely due to the currency rebounding slightly following days of poor performance rather than any solid support for the British currency.

The Pound’s poor performance resumed today. No-deal Brexit fears continue to dominate the outlooks for both Sterling and the UK economy, which was reflected in this morning’s contraction in UK manufacturing.

The biggest focus of the day for Pound investors though, was the Bank of England’s (BoE) August policy decision.

As expected, the bank left monetary policy frozen. What was notable was the bank playing up concerns about a possible no-deal Brexit.

The bank said that the risk of a no-deal Brexit had risen, and the bank cut its UK growth forecasts due largely to Brexit uncertainties. The bank continued to indicate that its monetary policy plans would be influenced by whether the Brexit process ends with a deal or not.

According to Mike Jakeman, Senior Economist at PricewaterhouseCoopers:

‘The Bank noted that Brexit uncertainty has become entrenched in the economy in 2019 and that this has pulled down the rate of economic growth to below trend. Our view on the economy is similar: we expect growth of 1.4% this year and 1.3% in 2020, on the assumption that a no deal Brexit is avoided. The Bank reduced its forecasts in its accompanying inflation report to 1.3% in both years. Subdued growth is likely to continue until businesses are provided with clarity on Brexit. Thereafter, a very wide range of outcomes are possible, depending on the access granted to the UK’s main trading partners in Europe’

CAD Exchange Rates Benefit from Rising Canadian Manufacturing

The Canadian Dollar saw a brief period of weakness last week, as investors digested some weaker than expected Canadian retail and sales data.

It caused speculation that the Bank of Canada (BoC) could be pressured into cutting Canadian interest rates if it happened.

However, this week the Canadian Dollar’s strong streak has seemingly resumed. Canada’s May growth rate report on Wednesday was a little stronger than expected, and Canada’s July manufacturing PMI showed improvement today as well.

Investors expected Canadian manufacturing to keep contracting in July, but the figure improved to 50.2 – just above the 50 mark point separating contraction from growth.

On top of this, the Federal Reserve’s more hawkish than expected tone in its policy decision this week was perceived as taking dovish pressure off of the Bank of Canada as well.

This meant that the Pound struggled to recover much against the resilient Canadian Dollar.

GBP/CAD Exchange Rate Forecast: Canadian Trade Balance Ahead

The Pound to Canadian Dollar exchange rate is on track to end the week far lower, despite the more mixed movement in recent sessions.

Sterling remains pressured by rising no-deal Brexit fears, and now the Bank of England’s lower UK growth outlook.

Unless there are any surprising Brexit developments tomorrow, investors are unlikely to have much reason to buy Sterling. Tomorrow’s UK construction PMI from July is unlikely to be particularly influential.

Instead, the Canadian Dollar is likely to drive GBP/CAD movement, as the day’s Canadian trade balance data could cause some late-week Canadian Dollar movement.

As the Canadian Dollar is a trade-correlated currency, poor trade data could make it easier for GBP/CAD to advance from its worst levels. Solid Canadian growth data may leave GBP/CAD closer to its worst levels however.

Looking ahead to next week, key UK growth and Canadian job market data, as well as further Brexit and central bank news, will influence the Pound to Canadian Dollar exchange rate.
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