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GBP to CAD Exchange Rate Sheds Almost Half of Last Week’s Gains despite Weak Canadian Data

October 24, 2019 - Written by David Woodsmith

Despite recent Canadian data falling short of expectations, they haven’t done much to offset hopes that the Bank of Canada (BoC) will avoid interest rate cuts in the coming months and this combined with Brexit uncertainty has left the British Pound to Canadian Dollar (GBP/CAD) exchange rate weaker this week. The Pound’s fresh weakness on Brexit and UK election speculation has been the primary cause of losses.

Last week saw impressive gains for GBP/CAD, as the pair surged from the level of 1.6700 to 1.7036 throughout the week. After briefly touching on a fresh four month high of 1.7052 on Monday though, GBP/CAD began to tumble on fresh Brexit jitters.

At the time of writing on Thursday, GBP/CAD trends near the level of 1.6869 after shedding around a cent and a half from the week’s opening levels.

GBP Exchange Rates Pressured by Brexit Delay and Election Uncertainties

The Pound’s strong streak has come to an end this week, as UK Parliament voted to block a fast-track plan for UK Prime Minister Boris Johnson’s new Brexit deal.

With the fast-track being blocked, it appears highly unlikely that Brexit will take place next week.

While investors are relieved that a no-deal Brexit is highly unlikely, there is also disappointment that the government’s relatively soft Brexit deal may not succeed either.

Another Brexit delay, now seen as extremely likely, could lead to months more uncertainty and even a possible UK general election.

According to Hussein Sayed, Chief Market Strategist at FXTM:

‘Although the French are pushing for a tighter deadline, the base case scenario remains until January 31. If this extension is granted, then a UK general election will likely be the next step,

If an election is called and approved by the House of Commons, expect to see more volatility in Sterling, although any downside pressure will be limited given that a hard Brexit scenario is now off the table.’

However, while the Pound was weak on election speculation today, there has also been speculation that even an election is not a certainty.

Uncertainty over what would take place over the next Brexit delay has risen today. Reports have emerged that there are uncertainties within the ruling Conservative Party about whether an election should be held this year or not.

One Conservative MP reportedly said:

‘There’s a big, big fight going on, basically,

The parliamentary party is split 50/50. Personally, I don’t think an election is a very good idea.’

CAD Exchange Rates Firm despite Lack of Strong Canadian Data

The Canadian Dollar has been relatively resilient this week so far and has been able to sustain some gains against a weaker Pound.

This is despite a lack of supportive Canadian data, as most of this week’s Canadian ecostats have shown surprising contractions.

Tuesday’s Canadian retail sales results unexpectedly fell to -0.1%, and August wholesale sales data on Wednesday unexpectedly contracted at -1.2% rather than simply slowing to the forecast 0.3%.

The Canadian Dollar has remained fairly sturdy despite this, as the data has not had a notably negative impact on Bank of Canada (BoC) interest rate speculation.

Markets bet that the BoC will avoid cutting interest rates during its October policy decision next week, while the Federal Reserve is expected to cut US interest rates.

Essentially, expectations for monetary policy divergence between the Bank of Canada and Fed are supporting the ‘Loonie’ today. According to Hosen Marjaee, Senior Portfolio Manager at Manulife Asset Management:

‘I think the focus is now more on the Bank of Canada versus the Fed approach to interest rates,

It seems like the Bank of Canada is going to be steady in the month of October but the Fed is going to cut rates, most likely.’

On top of BoC speculation, the Canadian Dollar also benefitted from rising prices in oil, Canada’s most lucrative commodity.

GBP/CAD Exchange Rate Forecast: How Long will the Brexit Delay Be?

Amid a lack of notable UK or Canadian ecostats due for publication through the end of the week, Pound to Canadian Dollar exchange rate movement will be driven by political developments instead.

The Pound’s movement has been dominated by Brexit news this week and that will likely continue, as investors eagerly await a response from the EU over how long the Brexit date will be delayed for.

If the EU announces a short delay, no-deal Brexit fears could return and the Pound will weaken.

On the other hand, if there is a long Brexit delay the Pound’s losses will be a little more limited, but general election speculation will keep pressure on the British currency.

Canadian Dollar movement could be influenced by any surprise developments in US-China trade relations or oil price movement.

Looking ahead to next week, Pound to Canadian Dollar exchange rate investors will focus on Brexit developments and the Bank of Canada’s (BoC) October policy decision.
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