Pound to Canadian Dollar (GBP/CAD) Exchange Rate Recovers from Morning Lows as Oil Prices Slip
UPDATE 14:26 BST: Lower crude prices are weighing on Canadian Dollar (CAD) demand on Tuesday afternoon.
This, as well as ongoing concerns about the possibility of a US-China trade war, helped the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate to recover from its morning slump.
However, GBP/CAD continued to trend below the week’s opening levels as the latest Brexit uncertainties kept pressure on the Pound (GBP).
Pound to Canadian Dollar Exchange Rate Struggles to Hold Best Levels Despite Trade Uncertainties
Market anxiety over this week’s upcoming Bank of England (BoE) policy decision have hit the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate, despite trade war jitters weighing on the Canadian Dollar (CAD).
Due to concerns about the North American Free Trade Agreement (NAFTA) and a possible US-China trade war, GBP/CAD surged last week from the interbank level of 1.73 to 1.75.
This week so far, GBP/CAD has fluctuated between the week’s opening interbank levels, and lows of 1.74. This morning, GBP/CAD briefly touched a monthly high but slumped again and was trending in the region of 1.74 at the time of writing.
Brexit uncertainties and concerns about the UK economic outlook weighed heavily on Sterling, while the Canadian Dollar benefitted from stronger prices of Canada’s most lucrative commodity, crude oil.
This has happened despite ongoing and worsening concerns that trade tensions between the US and China could escalate into a trade war.
Pound (GBP) Exchange Rates Knocked by Fresh Brexit Uncertainties
Despite the global trade jitters dominating headlines on Monday and Tuesday, the Pound (GBP) was unable to hold its ground even against some trade-correlated currencies like the Canadian Dollar (CAD).
This was due to persistent concerns about Britain’s economic outlook, as well as the latest Brexit developments causing fresh uncertainties and leaving the British currency looking unappealing.
On Monday it was reported that the UK government’s Brexit plan was defeated in the House of Lords, putting pressure on UK Prime Minister Theresa May to give MPs a more meaningful vote on how the Brexit process should be handled.
According to Fiona Cincotta, Senior Market Analyst at City Index:
‘Theresa May continues to struggle to get any Brexit-related decision approved by the Parliament and a vote by the Lords is about to make her life even more difficult because it will require that the Commons approve any Brexit deal reached between the government and Brussels.’
With the divide within the UK Conservative Party over how the process should be handled seemingly growing, markets are becoming more anxious again that the government may struggle to agree to any Brexit deal at all with the EU in time for the exit date in spring 2019.
Canadian Dollar (CAD) Exchange Rates Supported by Oil Prices despite Trade Jitters
Since last week, perceived trade tensions and the chances of a trade war emerging between the US and China worsened considerably, leaving trade-correlated currencies like the Canadian Dollar (CAD) a lot less appealing.
However, despite this the Canadian Dollar was able to climb versus a weak Pound and GBP/CAD has largely trended below the week’s opening levels since Monday.
This was largely due to the latest oil price news, as oil is Canada’s most exported commodity and often influences market demand for the Canadian Dollar.
While oil’s correlation with the Canadian Dollar has been a little weaker recently, market expectations for this week’s upcoming OPEC meeting have left both oil and the Canadian Dollar a little more resilient.
Oil prices have strengthened this week on speculation that OPEC may slightly relax its oil production cuts. Essentially, investors are looking to buy the commodity and then take profit from its highs if production looks set to increase.
Pound to Canadian Dollar (GBP/CAD) Forecast: Trade and Central Bank Developments in Focus
Brexit news could continue to weigh on Pound (GBP) demand in the coming sessions, but markets are likely to shift attention towards Central Bank news and speculation towards the end of the week.
A relatively quiet economic calendar on Wednesday means the Pound to Canadian Dollar (GBP/CAD) exchange rate will react largely to developments in global trade, particularly oil prices and US-China trade jitters.
If markets become even more anxious about the possibility of a full blown trade war between the US and China, the Canadian Dollar (CAD) would likely be sold off and GBP/CAD may continue to climb.
However, until Thursday’s Bank of England (BoE) decision, GBP/CAD gains may be limited.
Pound investors are anxious about Britain’s economic outlook as UK inflation, wages and growth have been disappointing recently. If the BoE takes a more cautious tone, GBP/CAD will weaken.
On the other hand, if the Bank of England expresses confidence that the UK economic outlook will improve or that it could still hike UK interest rates before the end of 2018, the Pound to Canadian Dollar (GBP/CAD) exchange rate will advance.