GBP to CAD Exchange Rate Fails to Hold Half-Year-Best as Bank of Canada Rate Cut Bets Shift

November 22, 2019 - Written by Tim Boyer

STORY LINK GBP to CAD Exchange Rate Fails to Hold Half-Year-Best as Bank of Canada Rate Cut Bets Shift

After spending most of the past week trending higher, the British Pound to Canadian Dollar (GBP/CAD) exchange rate tumbled again today. Investors have been selling the Pound in reaction to the latest UK PMI projections, while the Canadian Dollar is benefitting from fresh speculation that the Bank of Canada (BoC) will avoid taking a dovish tone on Canadian monetary policy in the foreseeable future.

GBP/CAD opened this week at the level of 1.7062 and has been trending with an upside bias since then. Yesterday saw GBP/CAD briefly jump to a high of 1.7265, which was the best level for the pair in half a year – since May.

After touching that high though, GBP/CAD tumbled on the latest Bank of Canada news and the pair has been falling further today. While GBP/CAD is still trending above the week’s opening levels, the pair is only around the level of 1.7110 at the time of writing.

GBP Exchange Rates Slide as Britain’s First PMI Projections Miss the Mark

Following a week of mixed performance on UK political and election uncertainties, the Pound saw a more solid drop today amid the publication of Britain’s November PMI projections.

Markit’s UK PMIs have only been published in finalised prints until now, but today saw the first publication of a projection for Britain’s sectors.

The data gave investors little reason to be excited though, with manufacturing contracting more deeply than forecast at 48.3.

On top of this, Britain’s key services PMI projection came in at 48.6 rather than the expected repeat of a stagnant 50.0 result.

The data overall showed the worst run of PMIs for Britain since the global recession a decade ago, and left economists speculating that the Bank of England (BoE) could be pressured to react.

According to Chris Williamson, IHS Markit’s Chief Business Economist:

‘With an upcoming general election adding to Brexit-related uncertainty about the outlook, it’s no surprise to see UK businesses reporting falling output and orders in November. The decline signalled by the flash PMI follows stagnation in October and adds to what has been the survey’s worst spell since the recession of 2008-9.

The weak survey data puts the economy on course for a 0.2% drop in GDP in the fourth quarter, and also pushes the PMI further into territory that would normally be associated with the Bank of England adding more stimulus to the economy’

CAD Exchange Rates Supported as Bank of Canada (BoC) Interest Rate Cut Bets Lighten

In recent weeks, signs that Canada’s economy has been negatively impacted by global trade and slowdown led investors to speculate that the Bank of Canada (BoC) could soon be pressured into taking a more dovish stance on monetary policy.

This news, combined with fresh US-China trade uncertainties, continued to weigh heavily on the Canadian Dollar for most of this week.

However, last night saw Bank of Canada Governor Stephen Poloz hold a speech, in which he indicated that the bank’s monetary policy was currently ‘about right’ for the economic situation.

While he did say that the BoC was carefully watching the monetary policy of other central banks like the Federal Reserve, Canadian Dollar investors overall saw his tone as less dovish than expected.

As a result, the Canadian Dollar’s support has been stronger since last night. Fresh hopes that a US-China trade agreement is still possible soon also supported the trade-correlated Canadian Dollar.

GBP/CAD Exchange Rate Forecast: Politics and Trade in Focus, but Canadian Data Could Prove Influential

As has been the case in recent weeks, UK politics and election developments are likely to remain in focus for the Pound while the Canadian Dollar outlook remains sensitive to the US-China trade war.

The Pound to Canadian Dollar exchange rate would climb if UK polls show a strong lead for the ruling Conservative Party, but political uncertainty will weaken the pair if the race appears to narrow.

With just about three weeks until the December election, upcoming UK data is likely to be overshadowed by political news for Sterling movement.

US-China trade developments are likely to influence the trade-correlated Canadian Dollar throughout the week, but key Canadian data due for publication could also cause notable movement.

Canada’s September wholesale sales will be published in Monday, but Friday’s Q3 growth rate stats will be the most influential report of the week for Pound to Canadian Dollar exchange rate investors.

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TAGS: Forecasts