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Pound to Canadian Dollar (GBP/CAD) Exchange Rate Falls as EU Launches Legal Action against UK

October 1, 2020 - Written by John Cameron

GBP/CAD Exchange Rate Sinks as UK-EU Relations Take a Turn for the Worst

The Pound to Canadian Dollar (GBP/CAD) exchange rate fell by -0.2% today. The pairing is trading around CA$1.714 following news that the European Union would be taking legal action against Prime Minister Boris Johnson’s Government against the controversial Brexit Internal Market Bill.

Ursula von der Leyen, the President of the European Commission, said:

‘We had invited our British friends to remove the problematic parts of their draft internal market bill by the end of September.

‘This draft bill is, by its very nature, a breach of the obligation of good faith laid down in the withdrawal agreement. Moreover, if adopted as is, it will be in full contradiction to the protocol on Ireland and Northern Ireland.’

As a result, GBP investors are concerned that souring relations between the UK and the EU could jeopardise as post-Brexit trade agreement.

In UK economic data, today saw the publication of the latest UK Manufacturing PMI for September. The figure fell below forecasts but remained relatively strong at 54.1.

Rob Dobson, a director at IHS Markit, commented:

‘While the sector is still making positive strides, keep in mind that there remain considerable challenges ahead. This is especially true for the labour market, which saw further job losses and redundancies in September.’

Canadian Dollar (CAD) Edges Higher as Canadian Manufacturing PMI Beats Forecasts

The Canadian Dollar (CAD) edged higher today following the release of the Canadian Manufacturing PMI for September. Canada’s manufacturing beat forecasts last month, rising from 55.1 to 56.

Shreeya Patel, the Economist at IHS Markit, commented on the data:

‘Overall, the health of the Canadian manufacturing sector continued to strengthen in September, as has been the case throughout the third quarter. Conditions improved at the fastest pace in over two years, helped by a solid upturn in manufacturing sales at both domestic and foreign clients.’

The ‘Loonie’ also benefited from news that the US would now more than likely go ahead with stimulus measures to bolster the American economy.

Analysts at Reuters said:

‘U.S. stock index futures rose after the Trump administration said it had proposed a new coronavirus fiscal aid package to House of Representatives Democrats worth more than $1.5 trillion.’

However, oil prices have dipped, limiting some of the commodity-correlated Canadian Dollar’s gains today.

GBP/CAD Outlook: Could Souring UK-EU Relations Drag Down Sterling?

The Canadian Dollar (CAD) will remain sensitive to global risk sentiment this week. With the Canadian economy heavily reliant on trade, any signs of a slowing economy – in America or in China – then the ‘Loonie’ would suffer.

The GBP/CAD exchange rate will remain sensitive to Brexit developments into the weekend. Again, any further signs that UK-EU relations could be souring would prove GBP-negative.

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