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Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Slides as Canadian Economy ‘Past its Soft Patch’

September 6, 2019 - Written by John Cameron

Pound Canadian Dollar (GBP/CAD) Exchange Rate Slides on Optimistic BoC

The Pound Sterling Canadian Dollar (GBP/CAD) exchange rate slumped and the pairing is currently trading at an inter-bank rate of CA$1.6250.

A day after the Bank of Canada (BoC) left its rates unchanged, Deputy Governor Lawrence Schembri said the Canadian economy was showing ‘a welcome degree of resilience’.

In a climate of rate cuts, Canada’s central bank has not shown any appetite for slashing interest rates as inflation has continued to remain around the BoC’s 2% target.

The Deputy Governor noted that growth has been strong despite the ongoing US-China trade war being the largest risk to the trade-dependent economy.

He also added that the Canadian economy ‘has clearly gotten past its earlier soft patch’ due to the rebounding housing market and strong labour data.

Speaking to a business audience in Halifax, Schembri added:

‘This solid starting point means the economy has a welcome degree of resilience to possible negative economic developments.’

Sterling (GBP) Slumps as MPs Set to Debate PM’s Call for a Early General Election

After a tumultuous week, Sterling edged lower on Friday as MPs are set to discuss Prime Minister Boris Johnson’s call for an early election later today.

Lawmakers are scheduled to hold another vote on an early election, although opposition parties want to ensure an early election does not lead to the PM pulling the UK out of the EU without a deal.

Commenting on this, Chief Investment Officer at UBS Global Wealth Management, Mark Haefele stated:

‘The main threat to Sterling’s recovery is if Johnson’s Conservative party were to win with a majority in an early election. They could then overturn the legislation requiring them to ask for an extension, increasing the threat of leaving without a deal.’

October High-Level US-China Trade Talks Buoy Canadian Dollar (CAD)

On Thursday it was announced the US and China are scheduled to resume face-to-face talks in early October.

Beijing’s Commerce Ministry revealed both sides had agreed to hold high-level talks in Washington which sparked an increase in risk appetite amongst investors.

While the Canadian economy remains strong despite trade tensions, it is likely this was welcome news and provided the ‘Loonie’ with an upswing of support.

However, former senior US Commerce Department official, William Reinsch has argued the trade talks could be dragged into 2020 and stated:

‘The President has to choose between accepting a weak agreement or continuing the war.

‘The trick is to make an agreement in September or October 2020, shortly before the presidential election, and it’ll look like he’s a hero. If he does that too soon, it has time to fall apart before the election. The Chinese aren’t going to comply with it anyway.’

Pound Canadian Dollar Outlook: Will Weak GDP Weigh on GBP?

Looking ahead to this afternoon, the Canadian Dollar (CAD) could continue to rise against the Pound (GBP) following the release of Canada’s employment data.

If August’s unemployment rate edges lower than expected, or average hourly wages rise, the ‘Loonie’ could make further gains.

Meanwhile, the Pound could slide at the start of next week following disappointing UK growth data.

If July’s annual GDP data shows weaker than expected growth, the Pound Canadian Dollar (GBP/CAD) exchange rate is likely to slump.

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