Political developments have weighed heavily on the Pound over the past seven days, causing the GBP/CAD exchange rate to decline in a week of choppy trading.
UK Government’s Pro-EU Leaflet Spend Sees GBP/CAD Weaken
The political scandals rocking the Pound last week intensified on Wednesday as the ‘Brexit’ debate returned to contribute to uncertainty caused by the ‘Panama Papers’ leak and the British steel industry crisis. News that the UK government had spent £9 million of public funds on a leaflet campaign supporting Britain’s membership of the EU provoked the wrath of ‘Brexit’ campaigners.
Meanwhile, the Canadian Dollar was strengthened by an uptick in Brent Crude oil. However the pace of ‘Loonie’ gains were slowed by the Ivey Purchasing Managers Index, which dropped from 53.4 to 50.1, showing economic activity barely expanded in March.
Weak UK Releases and Strong Canadian Data Sparks Pound Slump
The already weakened Pound dropped on Friday after a slew of negative data releases. Industrial production and manufacturing production figures for February significantly disappointed forecasts, declining across the board. Manufacturing production performed the worst, with a -1.1% on the month drop and a -1.8% year-on-year decline. The trade deficit also underperformed, narrowing a fraction of a near -£2 billion contraction to -£10.2 billion anticipated.
The Canadian Dollar was able to strengthen further following the release of strong Canadian data. The unemployment rate posted a surprise drop of -0.2% in March, taking joblessness down to 7.1%, thanks to a shock 40.6k Net Change in Employment figure. An increase of 10k in the number of jobs created had been predicted.
‘Brexit’ Poll and Strong Oil Prices Undermine Positive UK Inflation Data
Tuesday’s positive UK inflation data gave the Pound a temporary boost, although the Canadian Dollar later strengthened. Core UK inflation rose 1.5%, instead of the 1.3% predicted in March while the non-core index rose from 0.3% to 0.5%. The figures caused many to bring Bank of England (BoE) rate hike bets forward from 2020.
GBP/CAD gains gradually turned to losses as the day progressed, however, thanks to the weakening effect of ‘Brexit’ speculation and a continued surge in Brent Crude oil prices. A new poll showed that the ‘Leave’ campaign had extended a 3% lead on the ‘Remain’ campaign, undermining the positive mood generated by the consumer price index figures. Meanwhile, Brent Crude hit its highest level since the end of November 2015, rising to US$44.69 per barrel.
GBP/CAD Forecast: Volatility Predicted with BOC and BoE Monetary Policy Meetings Ahead
Today sees a policy meeting, report and interest rate decision from the Bank of Canada (BOC). Markets are widely expecting interest rates to remain at 0.5%, with the economic outlook contained in the Monetary Policy Report being of most interest. Economists will be hoping that the Bank has revised its outlook higher in light of the recent positive data, although with the International Monetary Fund (IMF) having cut its growth forecast for Canada, this could be unlikely.
The Bank of England (BoE) meets tomorrow to discuss interest rates. Like today’s BOC meeting, no change is expected and it is the subsequent minutes report that will be in focus. Traders will be keen to see if the recent inflation data has promoted a more hawkish attitude from the Monetary Policy Committee (MPC).
Heads Up
Summary of major upcoming data releases that we think may move the market.