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GBP to CAD Exchange Rate Edging Higher despite Uncertainties over Likely UK Election

October 29, 2019 - Written by Frank Davies

Despite concerns over the next steps of the Brexit process, with a UK general election expected in the coming months, the British Pound to Canadian Dollar (GBP/CAD) exchange rate advanced slightly yesterday. The latest UK political uncertainties doused market risk-sentiment and dampened demand for the trade-correlated Canadian Dollar as investors of the Canadian currency await tomorrow’s Bank of Canada (BoC) policy decision.

Last week saw GBP/CAD plunging. GBP/CAD opened the week at the level of 1.7036, and after touching on a 4 month best of 1.7052 on Monday the pair tumbled for the remainder of the week.

GBP/CAD ultimately closed the week at the level of 1.6751, and has been trending with an upside bias since markets opened this week.

Investors are hesitant to buy the Canadian Dollar ahead of highly anticipated central bank decisions set to take place on Wednesday. At the time of writing on Tuesday, GBP/CAD was trending closer to the level of 1.6836.

GBP Exchange Rates Climb as UK Could be in for December General Election

The Pound found a little fresh support on Monday, as the EU finally confirmed the length of the latest Brexit extension.

The Brexit date would be pushed back to a 31st of January deadline, but the date is flexible and Britain could leave the EU earlier than that if a deal is passed through UK Parliament.

However, the outlooks for the Brexit process and UK politics are mixed. Even after today’s news that a UK general election was highly likely for December, the broad uncertainties that accompany a general election meant that demand for Sterling has been limited.

Britain’s opposition Labour Party said that its conditions for a general election had been met, and it now seems all but confirmed that Britain will be headed to the polls for a 2019 General Election in December.

Announcing the Labour Party’s intention to seek an election, Labour Leader Jeremy Corbyn said:

‘So we are going to go out there, with the biggest campaign this party has ever mounted - totally united, totally determined - and I’m absolutely looking forward to going to every part of the country with my wonderful shadow cabinet team here and all the fantastic Labour activists to give message of hope where there isn’t one with this government.’

Sterling was climbing on hopes that the election could lead to a more solid Brexit outcome, but its potential for gains is limited due to the uncertainties of other potential outcomes, such as a hung parliament or a potential win for the Labour Party.

CAD Exchange Rates Weakened by Bank of Canada and Trade Uncertainties

While the Bank of Canada (BoC) is not expected to make any surprise shifts in tone during its October policy decision tomorrow, investors are still hesitant to buy the Canadian Dollar today.

Investors are anxious that due to some signs of weakness in Canada’s economy, as well as weakness in the US economy and the US-China trade war, the Bank of Canada could be pressured into becoming more dovish soon.

On top of Bank of Canada uncertainties, the Canadian Dollar is also being weighed by trade uncertainties this week so far.

The Canadian Dollar is a currency correlated to trade and risk. Demand for the currency was dampened by signs of fresh tensions in the US-China trade war, as well as weakening oil prices.

As oil is Canada’s most lucrative commodity, news that oil prices were tumbling on fears of higher oil inventories pressured the oil-correlated Canadian Dollar today.

GBP/CAD Exchange Rate Forecast: UK Election and Central Bank Developments in Focus

The Pound to Canadian Dollar exchange rate is climbing today, but the Pound’s potential for further gains is limited due to expectations for months of Brexit and political uncertainty.

If a UK election is confirmed for December, the Pound’s appeal is likely to be weaker over the coming month. If polls or the election obscure the path forward for Brexit, the Pound could shed some of its recent strength.

However, if the ruling Conservative Party is expected to win a majority, the Pound could climb on hopes that a softer Brexit could be possible.

While the Pound will remain focused on Brexit and UK politics, the Canadian Dollar also has plenty to react to in the coming sessions.

Wednesday will see the Bank of Canada (BoC) hold its October policy decision. If the bank takes a surprising shift in tone, the Canadian Dollar could be influenced. Federal Reserve news could also cause some Canadian Dollar movement.

On top of this, prices of oil, Canada’s most lucrative commodity, could also influence the Pound to Canadian Dollar exchange rate.
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