Pound Canadian Dollar (GBP/CAD) Exchange Rate Rises Ahead of BoC Decision

December 4, 2019 - Written by John Cameron

STORY LINK Pound Canadian Dollar (GBP/CAD) Exchange Rate Rises Ahead of BoC Decision

Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Higher as Markets Anticipate 2020 BoC Cut

The Pound Sterling Canadian Dollar (GBP/CAD) exchange rate edged up on Wednesday. The pairing is currently trading at around CA$1.7330.

The Canadian Dollar remained under pressure ahead of this afternoon’s Bank of Canada (BoC) interest rate decision.

While markets largely expect the bank to leave rates unchanged this month, the consensus is for a rate cut in early 2020.

While the ‘Loonie’ has remained strong over the course of the year as the BoC was one of the few banks that did not loosen monetary policy this year, investors have become focused on whether Governor Stephen Poloz will be forced to follow suit.

If the bank signals easing during today's meeting, it could send the currency lower.

In an email to clients, strategists led by Win Thin at Brown Brothers Harriman stated:

‘The market bias for interest rates is to the downside [as the economy] is clearly slowing.’

Meanwhile, anticipation for a dovish Bank of Canada has offset ‘Loonie’ support from oil price gains this morning.

UK Services PMI Suffers Fastest Pace of Decline in Eight Months

On Wednesday, data revealed that the UK service sector saw a renewed decline in business activity, with the pace of decline the fastest in eight months.

While the services sector fell into contraction, with the PMI reporting at 49.3 in November, this was above the earlier flash estimate of 48.6.

Markit reported that incoming work continued to decrease, and the demand from abroad was particularly weak.

However, Sterling rose against the 'Loonie' as services pessimism was offset by markets anticipating a dovish Bank of Canada.

Commenting on this morning's data, Markit’s Economics Associate Director, Tim Moore noted:

‘November's PMI surveys collectively suggest that the UK economy is staggering through the final quarter of 2019, with service sector output falling back into decline after a brief period of stabilisation.

‘Lower manufacturing production alongside an absence of growth in the service economy means that the IHS Markit/ CIPS Composite Output Index is consistent with UK GDP declining at a quarterly rate of around 0.1%.’

Sterling Rallies on Election Optimism

Sterling rallied on Tuesday, buoyed by an upswing in UK election optimism as the most recent poll revealed the Conservative Party extended its lead over Labour.

While data earlier in the morning showed that the UK’s construction sector remained stuck in the ongoing downturn, Brexit optimism offered GBP a boost.

In the latest opinion poll, Kantar revealed Boris Johnson’s Tories widened the gap by 12 points against the Labour Party.

The Pound benefitted as a Conservative win increases the chances of the UK leaving the European Union by the January deadline.

Meanwhile, comments from US President Donald Trump that a trade agreement with China may have to wait until after the US election weighed on the ‘Loonie’.

Added to this, a bill from the House of Representatives targeting China’s camps for Uighur Muslims in XinJiang have cast further doubt on Washington and Beijing reaching a ‘phase one’ deal.

Pound Canadian Dollar Outlook: Will a Dovish BoC Weigh on CAD?

Looking ahead to Thursday, the Canadian Dollar (CAD) could edge lower against Sterling (GBP) following a speech from the BoC’s Timothy Lane.

If the Deputy Governor’s speech is overly dovish, focusing on the risks to the Canadian economy, the ‘Loonie’ will slide.

Meanwhile, CAD could recover some losses later in the day following the release of the Ivey PMI.

If the PMI rebounds from the previous month, clawing its way out of contraction, the Pound Canadian Dollar (GBP/CAD) exchange rate could be left flat.

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