News of Extended Term for Carney Fails to Shore up Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate
UPDATE: Confirmation that Bank of England (BoE) Governor Mark Carney will remain in his post until January 2020 failed to boost the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate earlier.
Markets were generally disappointed that the extension was not more significant, with Carney still due to leave before the end of the Brexit process.
This left the GBP/CAD exchange rate to trend lower over the course of Tuesday afternoon, even as markets braced for fresh NAFTA talks.
Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Muted in Spite of Strong UK Wage Data
A surprisingly strong acceleration in UK average weekly earnings failed to boost the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate, even as wages continued to outpace inflation.
As earnings picked up to 2.6% in the three months to July this kept wages in a positive state of growth, albeit a slightly limited one.
This was accompanied by an increase in August’s claimant count rate, however, which indicates that the UK labour market is still struggling to tighten further.
With the positive impact of the latest comments from Chief EU Negotiator Michel Barnier, fading demand for Pound Sterling (GBP) generally softened on Tuesday morning.
Easing Risk Aversion Boosts Canadian Dollar (CAD) Demand
Reports that a second US-North Korea summit could be in the pipeline helped to limit the gains of the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate as market risk appetite picked up.
Demand for the Canadian Dollar (CAD) strengthened on the back of the news, even though global trade tensions remain elevated thanks to the risk of fresh US tariffs on Chinese products.
With oil prices trending positively the appeal of the commodity-correlated Canadian Dollar naturally improved, even though the outlook for the oil market remains far from stable.
However, as the matter of NAFTA is still unresolved CAD exchange rates look vulnerable to any fresh burst of US trade surprises.
Pressure Forecast for Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Ahead of BoE Decision
The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate may come under additional pressure as anticipation builds for Thursday’s Bank of England (BoE) policy announcement.
No change in monetary policy is anticipated at this juncture, limiting the potential for another GBP exchange rate rally.
Unless policymakers indicate greater confidence in the domestic outlook, boosting the odds of an interest rate hike coming sooner rather than later, the Pound is unlikely to see any major gains.
On the other hand, if the Monetary Policy Committee (MPC) backs further away from the prospect of tighter monetary policy Sterling is likely to fall further out of favour.
Markets still await confirmation as to whether Governor Mark Carney will extend his term with the BoE or not, something which could see some sharp moves for the Pound when news breaks one way or the other.
Modest Canadian Housing Data to Limit GBP/CAD Exchange Rate Downside
With forecasts pointing towards a steady Canadian new housing price index for July the downside potential of the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate could still prove limited.
As long as the Canadian housing market demonstrates signs of weakness, confidence in the health of the wider economy is unlikely to improve.
This could encourage the Bank of Canada (BOC) to maintain a more cautious view on monetary policy, diminishing the potential for any CAD exchange rate gains.
Even so, heightened risk appetite and easing trade tensions between the US and Canada may offer the Canadian Dollar support in the days ahead.
If, however, NAFTA renegotiations fail to show positive progress, this could help to boost GBP/CAD going forward.