GBP to CAD Exchange Rate Struggles to Hold Best as US-China ‘Phase One’ Deal Boosts Trade

December 16, 2019 – Written by Ben Hughes

Last week’s UK General Election led to a surge in demand for the Pound, but the British Pound to Canadian Dollar (GBP/CAD) exchange rate was unable to hold its best levels as UK Brexit uncertainties returned and Britain’s economic outlook remained mixed. The Canadian Dollar, despite weakness in recent Canadian ecostats, has been performing strongly on US-China trade developments and an optimistic Bank of Canada (BoC).

After opening last week at the level of 1.7411, GBP/CAD spent most of the week trending with a downside bias due to the Canadian Dollar’s resilience. After touching on a low of 1.7240 ahead of Thursday’s UK General Election results, GBP/CAD surged and touched on a 2019 high of 1.7788. This was the best level for GBP/CAD in over a year and a half, since April 2018.

Still, GBP/CAD ultimately slipped back from those highs and closed the week closer to the level of 1.7558. GBP/CAD continued to trend close to the week’s opening levels at the time of writing, as the Canadian Dollar continued to hold against Sterling’s advance attempts.

GBP Exchange Rate Outlook Weighed as UK PMI Projections Disappoint Markets

Last week’s UK General Election ended with a strong win for the ruling Conservative Party. The Tories, now with a strong majority, are expected to be able to smoothly pass their relatively soft Brexit plans through Parliament before the end of the year.

This news led to a rocket in Pound demand on Thursday night.

However, as the Pound had already been advancing over the past month while investors priced in a Conservative win, and uncertainty ahead of a year of fresh Brexit negotiations returns, markets have been readjusting Pound positions since Friday morning.

The Pound’s movement remains mixed today as investors continue to adjust positions. On top of this, the latest UK PMI projections fell short of forecasts today, putting further pressure on the Pound.

Investors became more anxious about Britain’s economic outlook as the contraction in manufacturing deepened to 47.4 rather than lightening as expected.

Services also contracted more than forecast, leaving the overall composite PMI at a concerning contraction of 48.5.

Analysts said Brexit uncertainty was among the main reasons for the poor performance. While some analysts believe that activity may improve now that the political outlook has calmed somewhat, there are warnings about the uncertainties in the next phase of Brexit.

According to Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply:

‘The Brexit path is still littered with obstacles and the need for strong negotiation skills for a future EU agreement will be paramount to avoid this downward slide becoming the economic landscape for an extended period.’

CAD Exchange Rates Find Support in US-China Trade Hopes

The trade-correlated Canadian Dollar has seen a boost in demand since the end of last week, thanks to a breakthrough in US-China trade negotiations.

After months of hopes, the US and China announced a ‘phase one’ trade deal had finally been reached.

While not a full deal, it would cause some planned tariffs to be pulled back and caused a big boost in demand for trade-correlated currencies like the Canadian Dollar.

The trade deal news also led to stronger performance in commodities, like oil. As oil is Canada’s biggest export, the Canadian Dollar’s performance was stronger than other trade-correlated currencies today.

Overall, the optimistic trade developments combined with lingering hopes of resilience in Canada’s economic and Bank of Canada (BoC) outlooks, kept the Canadian Dollar supported today.

GBP/CAD Exchange Rate Forecast: Key Data Ahead Could Dominate Movement

With Britain’s political outlook finally calming and the US-China ‘phase one’ trade deal supporting further calm in markets, the Pound to Canadian Dollar exchange rate outlook could be driven by major data due throughout this week.

Next week will see many bank holidays amid the festive period, so many of 2019’s key remaining ecostats will be published this week.

Britain’s November job market report and Canada’s manufacturing sales stats will come in tomorrow. Wednesday will follow with November inflation rate data from both Britain and Canada.

Even more influential news will come in towards the end of the week. Britain’s retail sales results and the Bank of England’s (BoE) December policy decision will come in on Thursday, with UK growth and Canadian retail sales rounding the week off on Friday.

Any surprising UK political developments, or the announcement of the next Bank of England Governor, could also influence the Pound to Canadian Dollar exchange rate.

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TAGS: Pound Canadian Dollar Forecasts