Foreign Currency Market Update – GBP / CAD Update
The Pound hit its highest level against the Canadian Dollar for over six years during last week’s session, with the GBP CAD exchange rate spiking to 1.9364 during Wednesday trading.
The main drag on the Loonie over the past seven days has been the ongoing standoff between Greece and the European Union regarding how best to deal with the Hellenic state’s burgeoning debt pile. Last Wednesday’s eurogroup summit of finance ministers heard the radical Syriza-led Greek government present its proposals for a relaxation of their nation’s current bailout deal with the EU / ECB / IMF ‘Troika’, which had previously provided the ailing Hellenic state with a €240bn lifeline. Europe’s finance ministers remained unimpressed and no deal was reached.
Former UK Chancellor of the Exchequer Kenneth Clarke struck a pessimistic tone when he dubbed Athens’ new policymakers as, ‘latter day Trotskyites’, during a weekend interview and described a Greek exit from the euroland as ‘inevitable’. Clarke went on to suggest that the best that could be hoped for from the situation was that provisions would be made to, ‘minimise the impact on financial markets,’ if and when the Grexit does take place. The mood in the markets deteriorated yesterday when the latest round of talks between Greece and the eurogroup dissolved in acrimony after just three hours, with the delegation from Athens describing the EU’s proposals as ‘absurd’. Greece’s current bailout deal comes to an end on the final day of this month; if a Grexit begins to look more likely during the intervening period, then expect the export-driven Canadian Dollar to suffer, potentially sending GBP CAD back up towards its recent multi-year high.
On a brighter note, last week’s tentative ceasefire between warring factions on the Eastern edge of Ukraine could have the opposite effect to a potential Grexit on the Loonie. As things stand at the minute, last week’s cessation of violence between Russian backed militiamen and Ukrainian troops does not appear to be holding, as fighting rages in the key outpost of Debaltseve. However, both sides have committed to the deal, so the hope exists that the situation may improve during coming days. Such an outcome would add to the downward pressure on GBP CAD which this morning’s record-low UK inflation data had elicited. If the near-term downward move for GBP CAD gains traction, then the pair could trend lower towards this month’s nadir of 1.8764.
Heads Up
Summary of major upcoming data releases that we think may move the market.