GBP to CAD Exchange Rate Struggles to Sustain Gains as NAFTA Hopes Rise

July 25, 2018 – Written by Minesh Chaudhari

This week’s news that the UK Cabinet Office will be taking control of UK-EU Brexit negotiations from now on left the Pound most appealing and the British Pound to Canadian Dollar (GBP/CAD) exchange rate has climbed slightly as a result. However, the pair’s movement remains tight and the Canadian Dollar has found its own support in the latest NAFTA speculation.

Last week, bearish UK news caused GBP/CAD to tumble from the week’s opening level of 1.7412 to around 1.7258, and the pair briefly touched a monthly low of 1.7176. Since markets opened on Monday, GBP/CAD has edged higher but has been unable to sustain a solid recovery and at the time of writing the pair trended in the region of 1.7280.

GBP’s Latest Brexit Support Limited as Uncertainties Remain

While soft Brexit hopes have improved slightly this week, this has not been enough to help the Pound to make a sustained recovery from its recent low levels.

On Tuesday, before UK Parliament closed for its summer recess, UK Prime Minister Theresa May released a statement indicating that the UK Cabinet Office was to take charge in UK-EU Brexit negotiations from now.

This essentially meant that May was directly overseeing Brexit talks, and following the publication of her relatively soft Brexit white paper a few weeks ago this has made investors a little more hopeful that a soft Brexit is possible.

According to Neil Jones from Mizuho Bank Ltd., the news made the Pound a little more appealing:

‘short-term Pound positive as it’s likely to lead to a softer Brexit,

The market will see this as the hard-line Brexiteers are on the way out. The pendulum will shift to a softer stance.’

It followed weeks of worsening Brexit jitters, as the UK government faced objections over its Brexit plans from within UK Prime Minister Theresa May’s own Conservative Party.

However, Sterling’s strength on this week’s Brexit news was limited, as investors remained concerned about the strength of UK Prime Minister May’s position. Fears persist that ‘hard Brexit’ advocates may raise a leadership challenge in protest of her Brexit plan.

For now, with Parliament on recess, May’s position appears safe, but political and economic jitters are limiting the Pound’s recovery potential.

Bets on whether or not the Bank of England (BoE) will hike UK interest rates during its August policy decision next week are mixed, and investor focus is now shifting to the BoE.

CAD Keeps Pressure on Pound on Optimistic Commodity and Trade News

The risky commodity-correlated Canadian Dollar has seen slightly stronger support over the last week which has prevented GBP/CAD from mounting a stronger recovery.

With domestic Canadian data stronger than forecast and investors becoming more confident that the Bank of Canada (BoC) will hike Canadian interest rates more before the end of the year, some global trade factors have boosted the ‘Loonie’ too.

While US President Donald Trump continues to ramp up protectionist trade rhetoric and this is keeping pressure on trade-correlated currencies, weakness in the US Dollar (USD) has helped its rivals like the Canadian Dollar to strengthen.

On top of this, recent news suggests has bolstered hopes for a fix in North American Free Trade Agreement (NAFTA) renegotiations. Lastly, stronger prices of oil, Canada’s most lucrative commodity, are keeping the Canadian Dollar buoyed.

GBP/CAD Forecast: Political and Trade Developments Remain in Focus

Amid a lack of particularly notable UK or Canadian data due for publication for the remainder of the week, other factors are more likely to drive the Pound to Canadian Dollar exchange rate.

For example, any potential developments in the Brexit process, be it from comments from EU officials or signs of unrest within the UK Conservative Party, would have an impact on the Pound.

While UK Parliament is on recess, the Pound would certainly plunge if any hard Brexit supporting Conservatives indicate that a leadership challenge towards UK Prime Minister Theresa May is possible.

Meanwhile, the Canadian Dollar will continue to be influenced by the US President’s tone regarding trade, including tariffs and the potential for a global trade war.

Developments regarding the North American Free Trade Agreement (NAFTA) are likely to be influential too.

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TAGS: Pound Canadian Dollar Forecasts