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GBP/CAD News: Pound Canadian Dollar Exchange Rate Wavers on Brexit and BoE Rate Hike Bets

November 1, 2021 - Written by John Cameron


GBP/CAD Wavers on Brexit, BoE and CAD Strength

The Pound Canadian Dollar (GBP/CAD) has wavered today as Brexit concerns are offset by rate hike expectations ahead of the Bank of England’s (BoE) meeting on Thursday.

In addition, the Canadian Dollar (CAD) is supported by an ongoing recovery in crude prices and a better-than-expected manufacturing PMI from Canada.

Pound (GBP) Undermined by Brexit Concerns

The Pound (GBP) fell at the start of today’s session, as renewed Brexit concerns weighed on GBP sentiment.

Recent UK-EU negotiations on the Northern Ireland protocol have ended in an impasse, with the UK wanting to scrap the existing deal and start from scratch and the EU wanting to amend and alter the current agreement.

In addition, the chief negotiators on both sides seem to be striking rather accusatory tones, suggesting frustration.

The UK’s head negotiator, Lord Frost, criticised what he says is an ‘overly strict’ approach from the EU, adding:

’The insistence of the EU on treating these arrangements as like any other part of its customs and single market rules, without regard to the huge political, economic, and identity sensitivities involved, has destroyed cross-community consent well before the four-year mark.’

Meanwhile, European Commission Vice-President Maroš Šefčovič has complained that the UK appears antagonistic. In an editorial for the Daily Telegraph, Šefčovič writes:

‘I am working round the clock to reach an agreement with the UK Government to provide [the] stability, certainty and predictability that Northern Ireland deserves.

‘I am increasingly concerned that the UK Government will refuse to engage with this and embark on a path of confrontation.’

Additionally, tensions over Anglo-French fishing rights are also bubbling. France has argued that the UK is not meeting the terms of the Brexit agreement by denying permits to some French fishing vessels. The dispute has led to threats from both sides and culminated in the French authorities detaining a British boat.

With tensions flaring over these two issues, some are worried that the UK could be on course for a trade war with the EU.

Supporting the Pound, however, are the ongoing expectations of a rate hike at the BoE’s policy meeting on Thursday.

City traders are sure that the bank will vote to raise interest rates at its next policy decision, though some economists believe the BoE will wait until December or later to do so.

Yet with a rate hike priced in, GBP investors are remaining rather bullish on the Pound. This may be limiting Sterling’s losses and causing GBP/CAD to waver.

Canadian Dollar (CAD) Wavers despite Rising Oil and Strong PMI

Meanwhile, the Canadian Dollar has gained this afternoon amid rising oil prices and a better-than-expected manufacturing PMI.

After oil slipped to a two-week low last week, WTI crude has been slowly recovering over the weekend, thanks to expectations of sustained strong demand and the Opec+ decision to stick to a gradual increase in production. WTI crude has climbed by $2 in today’s European session, thereby boosting the oil-linked ‘Loonie’.

In addition, Canada’s manufacturing PMI for October beat forecasts. The report unexpectedly improved, rising from 57 to 57.7 – a seven-month high – far better than the forecast drop to 55.

The PMI showed that factory activity conditions improved for the sixteenth consecutive month amid a surge in new orders due to increased foreign and domestic demand. However, the positive results are tempered by some concerns around global supply chain disruption.

But despite these tailwinds supporting CAD, it continues to waver against the Pound so far today.

GBP/CAD Exchange Rate Forecast: BoE Decision in the Spotlight

Movement in GBP/CAD could be limited for the first part of this week as investors await the BoE decision.

Although traders expect a rate hike, consensus estimates predict that the bank will leave interest rates and quantitative easing unchanged at 0.1% and £875bn, respectively. If the bank does not tighten monetary policy, this may disappoint investors and the Pound could slip.

However, if the bank does decide to raise interest rates, or perhaps taper, then GBP may firm.

Of course, the details of the bank’s decision, how policymakers voted, and speculation about future tightening will also influence GBP exchange rates.

Turning to the Canadian Dollar, oil prices are likely to be the key driver of movement over the next two days. Will oil extend its recovery?

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