Wednesday’s data was unable to give investors a reason to buy the British Pound to Canadian Dollar (GBP/CAD) exchange rate, so despite market anticipation for the Bank of England (BoE) decision on Thursday the pair has continued to trend below the week’s opening levels, partially thanks to strong Canadian data on Tuesday.
Various factors have left the Canadian Dollar more appealing lately and GBP/CAD slumped from 1.7259 to 1.7107 last week. This week so far, GBP/CAD briefly attempted to rise before falling again and hitting a six-month-low of 1.7057 on Wednesday – the pair’s lowest level since January. At the time of writing, GBP/CAD trended in the region of 1.7077.
GBP Lacks Fresh Support as Investors Anticipate Bank of England (BoE) Decision
Recent UK data has given investors little reason to be bullish on the Pound amid broad Brexit uncertainties, and bets that the Bank of England (BoE) will hike UK interest rates in its policy decision on Thursday aren’t making the Pound more appealing either.
The bank is expected to make its first UK interest rate hike of 2018 on Thursday, but with the possibility of a worst-case scenario ‘no deal’ Brexit still weighing on markets, investors still aren’t hugely eager to buy the Pound.
As a result, this week’s underwhelming UK data has done little to reassure investors about Britain’s economic outlook or make the Pound more appealing.
Monday saw the publication of Britain’s mortgage lending and approvals data. Lending fell short of forecasts but approvals beat expectations. This was followed on Tuesday by GfK’s July UK consumer confidence survey data, which unexpectedly worsened from -9 to -10.
Then on Wednesday, Britain’s July manufacturing PMI from Markit was published.
It came in lower than expected, sliding from 54.3 to 54.0 rather than the forecast 54.2. This indicated that British factory work was more subdued than expected – and analysts expect more weakness is likely in the coming months.
However, economists noted that while it gave the BoE more reason to leave rates frozen this week if desired, there was no real reason to believe it would dissuade a rate hike completely. According to James Smith from ING Bank:
‘Having said all of that, today’s slip in the PMI is unlikely to faze Bank of England policymakers ahead of tomorrow’s decision. Representing around 10% of output, manufacturing is a relatively small part of the UK growth mix. Importantly, the recent data flow – particularly in the much larger service sector – has largely backed up the Bank’s view that the economy has regained poise after the weak first quarter.
For that reason, we think the Bank of England will increase interest rates this week. But the key thing to watch is what the Bank has to say on its next steps.’
CAD Remains Appealing Following Tuesday’s Growth Results
The Canadian Dollar outlook has been increasingly bullish over the past month, despite broad market concerns about US trade protectionism and the potential of a full blown global trade war.
This has been due to signs indicating a more hawkish path for the Bank of Canada’s (BoC) monetary policy outlook, such as stronger Canadian data.
Trade concerns have even been eased slightly for Canadian Dollar investors, as leaders in Mexico are becoming more optimistic about the possibility of a deal being reached on North American Free Trade Agreement (NAFTA) renegotiations.
Tuesday’s Canadian Gross Domestic Product (GDP) data from May beat forecasts, indicating that Canada’s economy was stronger than expected despite trade concerns.
This kept the Canadian Dollar appealing even after some underwhelming despite some underwhelming manufacturing PMI data from July on Wednesday.
GBP/CAD Forecast: Bank of England Decision and Trade Balance Report Ahead
The Pound to Canadian Dollar exchange rate may remain near its worst levels in months if the Bank of England (BoE) doesn’t do anything to make the Pound more appealing on Thursday.
However, unless the bank hikes UK interest rates and hints that further rate hikes are on the way between now and early-2019, the Pound is likely to remain relatively limp instead.
This would leave the Pound to Canadian Dollar exchange rate reacting to upcoming data, or developments in the global trade outlook instead.
Friday will see the publication of Britain’s key services PMI from July, as well as Canada’s July’s trade balance results.
Any news regarding US trade protectionism or developments in NAFTA talks could also influence the Pound to Canadian Dollar exchange rate in the coming days.
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