GBP/CAD Exchange Rates Rise on Hopes of Brexit Financial Services Deal

UK Regulator Optimism over Trade Pushes GBP/CAD Exchange Rate Higher

The Pound to Canadian Dollar exchange rate saw a small rise on Tuesday’s trading session despite some Brexit-related turbulence hitting the headlines.

GBP fluctuated against the Canadian Dollar following Downing Street officials announcing that the UK would definitively be leaving the EU customs union after Brexit.

This moment of clarity in Brexit discussions means that the UK could be without any international trade deals for an indeterminate period.

Despite this, Financial Conduct Authority Chief Executive Andrew Bailey has suggested that UK financial services could benefit from an exclusive deal.

Speaking at a City of London dinner, Mr Bailey said:

‘You can get it if you really want. If it is possible to envisage a partnership agreement on fishing, it is possible to have open financial markets and mutual recognition of regulatory regimes.’

While Mr Bailey’s speech has helped push the Pound to Canadian Dollar exchange rate higher, it comes after a City of London plan for EU single market access was rejected.

The hope that specific Brexit trade deals could be easily achievable has kept Pound traders optimistic for now.

If, however, an exclusive financial services agreement seems impossible then Sterling could lose ground to the Canadian Dollar.

Canadian Dollar Declines on Gloomy National Economic Outlook

In addition to lacklustre crude oil prices, the Canadian Dollar has fallen against the Pound on concerning economic predictions.

Amidst mounting economic uncertainty, Manulife Asset Management Senior Economist Frances Donald has warned that:

‘We have this problem, which is that we [Canada] have a whole pile of uncertainties — much more than we do in the United States. We still don’t know what those (two) rate hikes we received in 2017, and now one in 2018, will do.’

For context, after a long period of unchanged interest rates the Bank of Canada (BoC) raised rates twice in a row in 2017. The BoC further increased interest rates in January 2018 to 1.25%.

Added to ongoing worries about the North American Free Trade Agreement (NAFTA) renegotiations, the net effect has been lower confidence in the Canadian Dollar.

GBP/CAD Forecast: BoE meeting and Jobs Data likely to Drive Rates

This week, Pound/Canadian Dollar exchange rate movement is likely to be driven by news from the Bank of England (BoE), which holds its monthly policy meeting on 8 February.

The BoE’s policymakers are not expected to adjust interest rates, but may respond to the recent spate of poor UK PMI readings.

If policymakers seem concerned about the underlying strength of the UK economy then the Pound to Canadian Dollar exchange rate could drop sharply.

On the other hand, if the BoE’s inflation report suggests that prices could rise in the future then the Pound could appreciate on hopes of further interest rate rises.

Upcoming Canadian data of importance will be 9 February’s jobs figures for January.

While the national unemployment rate isn’t expected to change from 5.7%, the Canadian Dollar could still appreciate if the number of employed persons increases as expected.

Jobs data has a tendency to fluctuate outside expected ranges, so the actual employment change figure could exceed or miss forecasts and trigger CAD volatility.

John Cameron

John studied economics at Cambridge University and later became an MSTA qualified Technical Analyst. He began working for TorFX almost a decade ago and now holds a Senior Account Manager position. As well as lending his clients support and guidance, John has produced market commentary and detailed exchange rate analysis for a number of online publications.

Contact John Cameron