GBP to CAD Exchange Rate Rebounds as UK Services Sector Avoids Deeper Contraction

January 6, 2020 - Written by James Fuller

STORY LINK GBP to CAD Exchange Rate Rebounds as UK Services Sector Avoids Deeper Contraction

Today’s stronger than expected UK PMI results have sent the Pound climbing against most major currencies, and the British Pound to Canadian Dollar (GBP/CAD) exchange rate is among the pairs seeing strong gains today. This is despite prices of oil, Canada’s most lucrative commodity, only seeing further gains. Market demand for the ‘Loonie’s is limited due to market aversion towards currencies correlated to risk or trade.

Last week saw mixed movement in GBP/CAD. GBP/CAD opened the week at the level of 1.7107 and briefly touched on a high of 1.7250 around the New Year, before tumbling in the second half of the week.

On Friday, the market surge in oil prices saw GBP/CAD slump even lower below the week’s opening levels and ultimately close the week in the region of 1.7000.

This week so far movement has remained mixed. GBP/CAD touched on a low of 1.6964 this morning, its lowest levels in almost two months, before rebounding in reaction to UK data. At the time of writing, GBP/CAD is trending near the level of 1.7056.

GBP Exchange Rates Find Solid Support as UK Services Data Beats Projections

For much of last week, the Pound was being driven by broad market sentiment regarding the 2020 Brexit and UK economic outlooks. Investors bought the cheap Pound from lows before the New Year, but sold the currency again towards the end of the week.

Sterling remained pressured by concerns over how the Brexit process would unfold this year, as well as some weaker than projected UK PMI data towards the end of the week.

Weakness in UK manufacturing and construction data was part of why today’s stronger than expected services report was a pleasant surprise to investors though.

Britain’s December services PMI was projected to see a deeper contraction of 49.2, but the figure unexpectedly improved to 50.0.

As a result, the overall composite PMI came in at 49.3 rather than the expected 48.6, even though manufacturing was disappointing.

The data indicated to analysts that UK businesses became more confident following the clear and decisive results of the 2019 General Election in December. It boosted market demand for the Pound today.

According to Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply:

‘Other clouds of uncertainty must also include the potential for further political instability as negotiators and policymakers take the next steps. But with the fastest level of job creation since the summer and a bounce in business optimism not seen since September 2018, commentators could be forgiven for believing there could potentially be a turning point on the horizon if the UK plays its cards right.’

CAD Exchange Rate Appeal Limited despite Surging Oil Prices

The Canadian Dollar was one of the market’s most appealing major currencies at the end of last week, due to a surge in prices of oil, Canada’s most lucrative commodity.

Oil prices rocketed in panicked reaction to a sudden US air strike on Iranian Military Leader Qassem Suleimani. Analysts believe a retaliation from Iran is likely, and this sudden surge in military tensions has caused concerns about oil production.

Oil prices have continued to advance since then, but the Canadian Dollar’s gains in reaction to oil prices slowed today.

Some investors opted to sell the Canadian Dollar back from its highs. The Canadian Dollar is still a currency correlated to risk and trade-sentiment, so it has been unable to fully capitalise on oil prices.

Today’s Canadian PPI data was mixed, but ultimately had little impact on Canadian Dollar movement.

GBP/CAD Exchange Rate Forecast: Canadian Data Could Keep CAD Supported This Week

This week’s most notable UK data has already been published, leaving the Pound to Canadian Dollar exchange rate to be driven by other factors such as politics and Canadian data this week.

The Pound outlook is mixed, as Brexit uncertainties persist ahead of the formal Brexit date at the end of the month. If Brexit uncertainties worsen again, the Pound could weaken.

On the other hand though, there are many factors that could influence Canadian Dollar movement in the coming days.

Canadian trade balance and Ivey PMI data will be published tomorrow, followed by housing data on Thursday and the nation’s key job market stats on Friday.

A Thursday speech from Bank of Canada (BoC) Governor Stephen Poloz could prove influential to the Pound to Canadian Dollar exchange rate as well, as could potential developments in US tensions and oil prices.

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TAGS: Pound Canadian Dollar Forecasts