Carney Comments Prompt Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Uptick
UPDATE: Confirmation that Bank of England (BoE) Governor Mark Carney is in discussions with the Treasury about extending his time in the post offered the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate a sharp boost.
Demand for Pound Sterling (GBP) picked up in the wake of Carney’s comments, even though the Governor declined to say whether he has actually agreed to remain throughout 2019 or not.
Hopes that the BoE will not see an upheaval next year in the midst of the Brexit aftermath offered a solid boost to GBP exchange rates on Tuesday afternoon.
Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Momentum Limited by Underwhelming UK PMIs
The disappointing nature of August’s UK manufacturing and construction PMIs curtailed the upside potential of the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate this week.
Confidence in the underlying health of the UK economy was dented as both the manufacturing and construction sectors lost momentum on the month.
Although both sectors remained in a state of growth this slowdown has raised fresh concern over the strength of the economic outlook, especially as the UK and EU remain at odds over a number of key Brexit issues.
With Theresa May’s Chequers proposals struggling to find much favour with either EU negotiators or backbench Conservatives, the odds of a hard exit remain heightened.
As uncertainty looks set to weigh on export growth and domestic confidence in the months ahead these latest signs of weakness weighed heavily on demand for Pound Sterling (GBP).
NAFTA Disappointment Raises Pressure on CAD Exchange Rates
As trade talks between the US and Canada failed to conclude by their Friday deadline this offered a boost to the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate.
The Canadian Dollar (CAD) came under significant pressure as attempts to salvage NAFTA fell through, raising the risk of additional trade barriers and US tariffs.
CAD exchange rates had benefitted from market optimism over the prospect of a new deal over the course of the last week, exacerbating the Canadian Dollar’s resultant weakness.
Even though oil prices continued to strengthen, with Brent crude breaking back above US$79 per barrel, this was not enough to shore up CAD in the face of market risk aversion and a stronger US Dollar (USD).
Dovish BOC Rate Decision to Boost GBP/CAD Exchange Rate
An additional boost for the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate could come on the back of Wednesday’s Bank of Canada (BoC) interest rate decision.
While markets do not anticipate any change in monetary policy at this juncture focus will still fall on the tone of policymakers.
A more dovish meeting could see the Canadian Dollar shed further ground across the board as the odds of further monetary tightening diminish.
If the BoC looks set to sit on its hands for longer the mood of CAD exchange rates is likely to sour further, especially with the Federal Reserve set to continue its own interest rate hike cycle in the months ahead.
Unless the BoC demonstrates signs of greater optimism the GBP/CAD exchange rate looks set to push higher.
Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Vulnerable to Weaker UK Services PMI
Another bruising could be in store for the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate with the release of August’s UK services PMI, however.
Although forecasts point towards an uptick in sector growth on the month the risk of a downside surprise remains.
If the service sector follows the trend of the underwhelming manufacturing and construction sectors this would leave the Pound vulnerable to some sharp losses.
Even though Pound Sterling can shrug off the more negative impact of the other PMIs a poor showing from the service sector would raise the prospect of a weaker third quarter gross domestic product.
Any signs of softening here are thus likely to put a significant dampener on the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate.