Growing Fears over ‘No-Deal’ Brexit Drag Pound to Canadian Dollar (GBP/CAD) Exchange Rate Down

August 6, 2018 – Written by Toni Johnson

Last week saw the Pound to Canadian Dollar exchange rate open in the region of CA$ 1.7128 on Monday and close down lower at a level of CA$ 1.6899 on Friday.

This steady deterioration of the GBP/CAD exchange rate was down to the aftermath of a Bank of England (BoE) interest rate decision.

As expected, BoE policymakers historically approved an interest rate hike from 0.5% to 0.75%, which was the first ‘proper’ rate hike since 2007.

The Pound initially rose against the Canadian Dollar before the interest rate decision, but then fell sharply because of concerns that there could be no additional rate hikes for the foreseeable future.

Pressure on the Pound intensified when BoE Governor Mark Carney later said:

‘I think the possibility of a no deal [Brexit] is uncomfortably high at this moment.

‘Our job is to look at what could go wrong and what we could do to make sure that the BoE is in a robust position so it lessens the impact of a no deal Brexit.

‘We have made sure that banks have the capital, the liquidity that they need and we have the contingency plans in place… if there were to be a no deal Brexit.

‘A no-deal Brexit is highly undesirable.’

Perhaps the most damaging remark from Mr Carney was after the long-awaited interest rate hike, there could be a cut back to 0.5% (or lower) if Brexit caused too much economic damage.

The week for GBP traders was also capped with the negative news that UK services sector activity had slowed by more than forecast during July.

The services sector represents the single largest contributor to UK economic growth; responding to the news, Markit Associate Director Tim Moore said:

’The service sector moved back into the slow lane in July as business activity growth lost momentum for the first time since the start of spring.

‘While it’s difficult to quantify the precise impact of the recent heat wave on overall business performance, some survey respondents reported that a combination of hot weather and the World Cup had weighed on consumer footfall.

‘These short-term disruptions and a general slowdown in new business growth appear to have offset the boost to tourism-related activity from the extended dry period in July.’

GBP/CAD Exchange Rate Losses Caused by Mounting Brexit Pressures

The Pound (GBP) has lost ground to the Canadian Dollar (CAD) today, sliding in value because of growing concerns about a bad Brexit deal damaging the UK economy.

The latest worries come comments made by International Trade Secretary Liam Fox on Sunday; in an interview with the Sunday Telegraph, Mr Fox estimated that there was a ‘60% to 40%’ chance of a no-deal Brexit.

Mr Fox suggested that any failure in Brexit talks would be down to stubborn EU negotiators rather than their UK counterparts, a stance which has further rattled GBP traders.

Predicting that the Pound could fall further as Brexit negotiations near the October deadline, Standard Bank Strategist Steven Barrow says:

‘We think the timescale is unrealistic and, as this starts to dawn on the market, it could just prove another factor tipping risk assets over the edge in the autumn.’

Canadian Dollar to Pound (CAD/GBP) Exchange Rate Rises after Supportive Trade Deficit Drop

Today’s Canadian Dollar to Pound (CAD/GBP) exchange rate gains have been triggered by positive Canadian data from the previous week; there has been limited economic data out today.

Last Friday’s Canadian trade balance reading for June showed a deficit reduction with a shift from CA$ -2.72bn to CA$ -0.63bn, beating estimates for larger deficit printing of CA$ -2.3bn.

Pound Sterling to Canadian Dollar Exchange Rate Forecast: Are GBP/CAD Losses ahead on CA PMI Stats?

Unfortunately for Pound traders, the week’s current difficulties may continue on Tuesday with greater losses against the Canadian Dollar.

The Ivey PMI, which acts as a broad measure of Canadian economic activity, is expected to show accelerating activity with a rise from 63.1 points to 64.2.

Such a result could push the CAD/GBP exchange rate higher, ensuring continued Pound to Canadian Dollar losses going into the middle of the week.

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TAGS: Pound Canadian Dollar Forecasts