Brexit uncertainties have been keeping the Pound under pressure through quiet holiday trade this week, but the British Pound to Canadian Dollar (GBP/CAD) exchange rate has ultimately avoided losses due to lingering weakness in the Canadian Dollar. Investors have been hesitant to buy the Canadian Dollar amid this week’s Canadian growth data, which showed Canada’s economy contracting in October.
Since opening this week at the level of 1.7100, GBP/CAD spent most of the week trending lower as Brexit uncertainties weighed heavily on the Pound. Brexit jitters ultimately saw GBP/CAD touch on a month and a half low of 1.6995 at the beginning of the week.
However, on Friday the Pound saw a slight rebound in demand. These gains were only made easier by Canadian Dollar weakness amid the underwhelming growth data, and at the time of writing GBP/CAD had recovered the week’s losses and was trending closer to the level of 1.7108.
GBP Exchange Rates Benefit as Investors Unwind Positions in Year-End Movement
While the Pound’s movement for most of the past couple weeks has been either weak or limp, the British currency saw a jump in demand against many major rivals today.
Investors bought the Pound higher following a week of poor performance on widespread Brexit uncertainty, adjusting positions before next week when the decade will end and a potentially turbulent 2020 will begin.
Rather than any solid support for the Pound though, Friday’s movement was caused largely by investors unwinding short positions against the Euro. As the Euro strengthened, the Pound, which sees some correlation to Euro strength, also advanced.
According to Ulrich Leuchtmann, Analyst at Commerzbank:
‘What I’m seeing here, it’s mainly some Euro strength,
This very negative Euro sentiment has prevailed over 2019 and has run out of steam … coming to this period of low liquidity, more people are more inclined to remove those short positions,’
While Sterling benefitted from this Euro strength though, the British currency remained unappealing overall due to concerns about an upcoming year of Brexit uncertainty.
The UK government has ruled out the possibility of the Brexit transition period being extended. This means that unless UK-EU Brexit negotiations go amazingly next year, Britain could still be in for a cliff-edge hard Brexit scenario at the end of next year.
CAD Exchange Rates Weighed by Fresh Bank of Canada (BoC) Easing Speculation
In recent months, the Bank of Canada (BoC) has taken a resilient tone in regards to Canada’s economy and the monetary policy outlook. The bank has expressed confidence that current monetary policy will be enough to help Canada’s economic activity remain steady.
However, as a result some recent weakness in Canadian data has surprised investors and left the Canadian Dollar weaker as Bank of Canada easing speculation persists.
Earlier this week, Canada’s October Gross Domestic Product (GDP) growth rate report unexpectedly slipped into a contraction of -0.1%. Canada’s October growth rate was forecast to remain at 0.1%.
The slower than expected growth data, combined with a trend of weak growth for much of 2019, has left analysts speculating that the BoC could still be pressured into a more dovish stance next year.
According to Avery Shenfeld, Chief Economist at CIBC:
‘Markets and the Bank of Canada have been tempted to sound the ‘all clear’ signal . . . but a 0.1 per cent decline in October GDP puts the economy on a chilly path at the start of the fourth quarter,
You have to go all the way back to June to find a monthly growth reading better than a plus-0.1 per cent, so coupled with the steep employment decline reported for November, there’s at least some doubts about the underlying trend late this year.’
GBP/CAD Exchange Rate Forecast: Canadian Manufacturing Could Influence BoC Speculation
Next week will see the decade come to an end, but 2020 will begin with the same focus for Pound and Canadian Dollar investors.
Brexit is likely to remain the big focus for Pound investors next year, as the UK government is set to negotiate post-Brexit plans with the EU throughout the year amid the Brexit transition period.
While concerns of a hard Brexit are likely to keep pressure on the Pound, next week’s GBP/CAD movement could be influenced by data next week.
Markit’s December manufacturing PMIs for both Britain and Canada will be published on Thursday.
If Canada’s manufacturing PMI data beats forecasts, it could soften concerns about the health of Canada’s economy and douse Bank of Canada (BoC) interest rate cut speculation.
This, as well as any comments from BoC officials, could cause notable Pound to Canadian Dollar (GBP/CAD) exchange rate movement next week.
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TAGS: Pound Canadian Dollar Forecasts