Update: Hopes of ‘Privileged’ Single Market Access Prompts GBP/CAD Exchange Rate to Soar
The GBP/CAD exchange rate has surged today as markets reacted to reports that the EU Parliament is discussing the possibility of granting ‘privileged’ access to the single market post-Brexit.
The Pound exchange rate jumped as Business Insider reported that the EU Parliament is looking to draw up an ‘association agreement’ that would give the UK a similar deal to Canada.
This is a major divergence from earlier negotiations in which EU officials suggested that the UK government’s plans to leave the customs union would be incompatible with continued access to the single market.
Strong Inflation Pushes GBP/CAD Exchange Rate Higher
The Pound Canadian Dollar (GBP/CAD) exchange rate climbed by around two cents last week thanks to a broad-based lift in Sterling sentiment.
This was partly driven by rising speculation of a May rate hike from the Bank of England (BoE) following an unexpectedly robust inflation reading on Tuesday.
While some lacklustre retail sales figures caused Sterling to tumble in the second half of the week, it was able to rally at the very end of the week as Brexit optimism was lifted by a meeting between Theresa May and Angela Merkel.
Meanwhile with little domestic data being released, movement in the Canadian Dollar (CAD) last week was driven by external factors.
This saw CAD able to stem some of its losses throughout the week thanks to rising oil prices and an uptick in demand for high-yield currencies amid a decline in the US Dollar (USD).
Renewed Brexit Uncertainty Weighs on Sterling (GBP)
The Pound (GBP) is trending narrowly against the Canadian Dollar this morning as attention returns to Brexit following last week’s BoE speculation.
Jasper Lawler, Head of Research at CMC Markets said:
‘Whilst the BoE could look to raise interest rates as soon as spring, this is being overshadowed by Brexit concerns or more specifically confusion from Theresa May’s Brexit cabinet and uncertainties over the post Brexit transition period.’
‘As a result, demand for the pound remains limited.’
The main focus today is on a speech by Brexit Secretary, David Davis, who is expected to reassure markets that post-Brexit Britain will not become a ‘Mad Max’ style world.
To this end he is expected to pledge that the UK will not abandon workers’ rights and its environmental commitments once it leaves the EU.
Davis is also expected to argue that the UK and EU should work closely together on regulations and standards, something he hopes will ensure ‘frictionless’ trade.
Canadian Dollar Muted as USD Rally Returns
At the same time the Canadian Dollar find itself a little muted this morning as the currency comes under pressure from a strengthening US Dollar (USD).
After pausing yesterday as US markets closed for the Presidents’ Day holiday, the recent rally in USD appears to have resumed this morning.
Analysts are forecasting this may be the start of a deeper recovery in the US Dollar, in which case the Canadian Dollar may find itself coming under further pressure.
This also comes as oil markets begin to unwind some of their recent gains, likely also driven by the uptick in USD.
GBP/CAD Rate Forecast: UK Employment Figures to Bolster Sterling?
Looking ahead the GBP/CAD exchange rate may tick higher on Wednesday if the UK’s latest employment statistics come in higher than expected.
Economists currently forecast that both unemployment and wage growth will have remained unchanged in December.
However, should either of these show any signs of improvement it is likely to prompt Sterling sentiment to shoot higher.
Meanwhile the Canadian Dollar may tumble in the second half of the week as analysts predict domestic inflation will have plummeted from 1.9% to 1.4% in January.