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GBP to CAD Exchange Rate Surges on Surprise Shift from UK Brexit Party’s Election Stance

November 11, 2019 - Written by Minesh Chaudhari

The British Pound to Canadian Dollar (GBP/CAD) exchange rate saw significant pressure from US-China trade hopes and developments last week, despite the Canadian Dollar being pressured by fresh signs of weakness in Canadian data. This week so far though, relief about Britain’s economy, as well as a boost to the perceived chances of a relatively soft Brexit, have sent the pair surging to new highs.

After opening last week at the level of 1.6993, GBP/CAD spent most of the week tumbling due to higher market demand for trade-correlated currencies, ultimately closing the week near the level of 1.6903.

GBP/CAD was able to hold above last week’s November low of 1.6863, and this week so far has already seen strong gains due to the latest UK election developments.

After today’s news from the UK Brexit Party, the Pound surged over half a cent against the Canadian Dollar. At the time of writing, GBP/CAD is trending close to highs of 1.7045, the pair’s best levels since the beginning of the month.

GBP Exchange Rates Surge as Brexit Party’s Stance Seen as Boost to Ruling Conservatives

When markets opened this week, the Pound saw modest gains on market expectations that Britain’s economy would avoid a recession this year.

Sterling’s gains solidified after Britain’s Q3 Gross Domestic Product (GDP) growth rate was printed. The data fell slightly short of expectations at 0.3%, but still showed that Britain had avoided a recession which was a relief to investors.

However, the Pound’s biggest movement of the day came following a surprise development regarding Britain’s upcoming 12th of December General Election.

The Brexit Party, headed up by Nigel Farage, said that it would not contest seats won by Conservative Party MPs in the last election.

The news was seen as dampening the chances of the Brexit Party taking a bite out of the Conservative Party vote.

As a result, bets of a majority win for the ruling Conservative Party, followed by a relatively soft Brexit plan, rose. This led to a surge in the Pound.

Still, some analysts have warned that this news may ultimately have little impact on the election outlook. According to polling company YouGov:

‘However given the Brexit party was already trending downwards in the polls, it looked like this was happening already. So, despite today’s drama, this is unlikely to be a game-changing moment.’

CAD Exchange Rates Tumble on US-China Trade Uncertainty and Bank of Canada (BoC) Speculation

For most of last week, the trade-correlated Canadian Dollar trended gradually higher on signs of optimism in US-China trade relations.

The US and China were speculated as closing in on a preliminary trade deal or sorts, which left trade-correlated currencies stronger for much of the week.

However, towards the end of the week the Canadian Dollar’s strength ran out of steam.

US President Donald Trump said he had not agreed to roll back tariffs on China, and on top of this the latest Canadian job market stats disappointed investors.

As Canada’s employment change figure unexpectedly fell, Bank of Canada (BoC) interest rate cut bets rose and kept pressure on CAD.

According to James Knightley, Chief International Economist at ING:

‘The BoC has already laid the groundwork given its discussion of an "insurance cut". We think it will happen, especially when you consider Canada has the highest policy rate among major economies, which is adding to upside pressure on the Canadian dollar and eroding international competitiveness.’

These factors continue to pressure the Canadian Dollar this week so far, despite a lack of fresh Canadian data due for publication until later in the week.

GBP/CAD Exchange Rate Forecast: Election, Trade, and BoC Speculation in Focus

Slews of typically influential UK data will be published in the coming sessions, such as job stats tomorrow, inflation on Wednesday, and retail sales on Thursday.

However, these may not have a significant impact on the Pound’s movement amid broad UK election uncertainties.

Following today’s jump in Pound demand on election news, developments and speculation surrounding the election will continue to be the primary focus for Pound investors.

If more news comes out in favour of boosting the ruling Conservative Party’s chances of securing a majority in the election, the Pound could see further gains. News that complicates the path to a majority would cause Sterling weakness however.

As for the Canadian Dollar, it will continue to be driven by Bank of Canada (BoC) interest rate cut speculation and US-China trade developments.

If a BoC rate cut is perceived as becoming more likely or US-China trade relations worsen, the Pound to Canadian Dollar exchange rate could see fresh gains.
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