Foreign Currency Market Update – GBP / CAD Update
The general trend for the Pound Sterling Canadian Dollar exchange rate over the past seven days has been to the downside. The move lower culminated in a break to its for almost three months for GBP CAD shortly after trading in the currency markets recommenced on Sunday night.
Last week’s figures pointing to a contraction in the UK construction sector and a below-par set of domestic Industrial Output numbers added to ongoing concerns regarding a renewed slowdown in the British economic recovery . Commentators now believe that the next set of official Gross Domestic Product numbers may show that the UK economy expanded at a slower pace in the first quarter of 2015 than it had during the final quarter of 2014 and the Pound performed poorly across the board as a result. Analysts suggest that fears over the result of the upcoming General Election have caused businesses and individuals to postpone investment decisions and if this mood of uncertainty picks up pace ahead of May 7th then there may be further losses to come for the UK unit.
However, it was far from plain sailing all the way for the Canadian Dollar last week; the Loonie endured a pronounced midweek wobble following the publication of the minutes of March’s US Federal Reserve monetary policy meeting. Recent comments from Fed Chair Janet Yellen had lead investors to infer that they might have to wait until December, or possibly even into 2016, for the next US interest rate hike. Market participants were therefore surprised when Wednesday’s Fed memos instructed them that, ‘several participants judged that the economic data and outlook were likely to warrant beginning normalisation at the June meeting.’ A first American interest rate increase since the 2008 credit crisis would dampen aggregate demand in the States, harming Canada’s export industries and supressing support for the Loonie. The prospect of such a move caused a brief move higher for GBP CAD, but the Canadian tender was firmly back on track by the end of the week following Friday afternoon’s stronger than anticipated Canadian jobs data.
The Pound has started this week’s session on a firmer footing following the weekend publication of the latest Chinese trade numbers which showed a year-on-year reduction in shipments into China of over 12.0% last month. This result spelled bad news for Canadian exporters and the Loonie gave up ground against Sterling as a consequence. The near-term fortunes for Sterling are likely to be determined by this morning’s UK price rise numbers; a showing of below zero for the annualised inflation number would signify that the domestic economy has slipped into deflation. The Pound would endure broad selling pressure following such an outcome, but a result of above zero for the headline CPI figure would have the reverse effect.
Heads Up
Summary of major upcoming data releases that we think may move the market.