Despite higher market demand for risky commodity-correlated currencies since November began, the British Pound to Canadian Dollar (GBP/CAD) exchange rate has surged in reaction to Brexit reports and speculation. Sterling’s strength was limited by disappointing UK manufacturing data however.
Since opening this week at the level of 1.6812, GBP/CAD has seen mixed movement. GBP/CAD tumbled earlier in the week, hitting a three week low of 1.6661 on Tuesday night, before rebounding and recovering since Wednesday. At the time of writing on Thursday afternoon, GBP/CAD trends near a weekly high of 1.6966.
GBP Heads for Best Day in 9 Months Following Brexit Financial Services Deal Speculation
Following a week of bearish performance amid Brexit fears, the Pound got a strong boost on Thursday thanks to a report suggesting that the UK and EU were close to a deal regarding financial services.
Investor uncertainty about how UK-EU financial services would be affected by the Brexit process, including fears that the City of London would lose its influence in global markets, had been among the major concerns of markets since the beginning of the Brexit process.
A new article published in The Times newspaper claimed to have heard from government sources that the UK and EU had agreed to a tentative deal giving UK financial services access to the EU.
The deal reportedly has been agreed in virtually all aspects, ahead of being formally agreed. It claimed that the deal could be completed within around three weeks.
The EU’s ‘equivalence’ system would be used as the basis of the deal. This did come with a downside however, as the EU would be able to withdraw access to the system at any time with just a month’s notice.
Regardless though, the report offered investors some optimism following weeks of ‘no-deal Brexit’ fears.
Sterling’s demand was limited by Markit’s latest UK manufacturing PMI report, which indicated that UK manufacturing had worsened to its slowest level in 27 months.
However, in the afternoon Sterling found yet further support as the Bank of England’s (BoE) November policy decision saw the bank taking a fairly hawkish stance on monetary policy.
The bank said that in the event of a softer Brexit outcome, it expects Britain’s economic activity to improve and smoothen. Lee Hardman, analyst from MUFG, said the BoE:
‘looks a little more hawkish as it expects more excess demand, and that is before they incorporate fiscal stimulus from the budget as well,
The risks are more to a faster pace than slower as the market had been pricing in recently, assuming of course no Brexit calamity. This explains the stronger Pound reaction.’
CAD Fails to Hold Ground as Canadian Manufacturing Slows
Against other major rivals like the US Dollar (USD), the Canadian Dollar saw stronger performance on Thursday. However, a strong Pound still saw notable gains against the Canadian Dollar.
Demand for the Canadian Dollar was stronger amid recovering global stock markets and a generally bigger appetite for riskier trade-correlated currencies.
This slightly limited its losses against Sterling, but Canadian Dollar demand was dampened by the day’s Canadian data.
Thursday saw the publication of Canada’s October manufacturing PMI. Some forecasts suggested the figure would slow just slightly to around 54.5, but the figure instead fell from 54.8 to 54.9.
GBP/CAD Forecast: Key Canadian Data Could Drive Late-Week Movement
Despite the Pound to Canadian Dollar exchange rate’s Thursday surge, the Canadian Dollar’s outlook is generally positive.
Risk-sentiment is improving, supporting the trade-correlated Canadian Dollar, and the Bank of Canada (BoC) continues to signal that Canadian interest rates will soon rise at a faster pace.
The Canadian Dollar could find stronger support before the end of the week if upcoming Canadian trade balance and job market stats beat market expectations.
Canada’s employment change figure is forecast to have slowed from 63.3k to 12.7k in October. A stronger employment change figure could help the Canadian Dollar climb.
However, as the Pound to Canadian Dollar exchange rate currently trends well above the week’s opening levels, the pair could still be on track to end the week higher unless the Pound weakens.
Friday’s UK construction PMI is unlikely to be particularly influential, so the Pound to Canadian Dollar exchange rate is more likely to be influenced by potential Brexit developments or Canadian Dollar strength.
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