Pound Sterling to Canadian Dollar (GBP/CAD) Exchange Rate Surges 0.9% as Theresa May Primed to Defeat Leadership Challenge

GBP/CAD Exchange Rate Leaps Ahead of No Confidence Vote as MPs Pledge Support to May

UPDATE: The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate leapt higher this afternoon as markets bet on Theresa May surviving a leadership challenge.

As more than 158 MPs pledged their support to May this encouraged hopes that the vote of no confidence will fail, offering the Pound some degree of political stability.

While a significant degree of uncertainty still hangs over the matter of Brexit this was not enough to prevent GBP exchange rates recovering ground over the course of the day.

Threat of Conservative Leadership Challenge Weighs on Pound Sterling (GBP) Exchange Rates

UPDATE: Reports that 48 Conservative MPs have filed letters of no confidence against Theresa May saw Pound Sterling (GBP) slump this afternoon.

The prospect of a leadership challenge weighed heavily on the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate as this could pave the way for further political uncertainty.

With Theresa May’s future looking increasingly fragile the Pound is likely to remain on the back foot in the days ahead.

UK Politics Casts Shadow over Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate

In spite of the increased sense of political uncertainty hanging over the UK outlook Pound Sterling (GBP) exchange rates recovered some of their lost ground this morning.

As the initial market shock that followed Theresa May’s decision to postpone the parliamentary vote on Brexit eased this helped the Pound to claw back some of its losses.

A surprise uptick in UK average weekly earnings offered additional support to the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate, meanwhile.

Investors were encouraged to find that wage growth had unexpectedly accelerated in the three months to October, even though the labour market continues to show signs of softness.

While this is unlikely to be enough to alter the policy outlook of the Bank of England (BoE) in the face of Brexit uncertainty the positive showing still gave the Pound a boost.

Canadian Dollar (CAD) Exchange Rates Struggle to Hold Onto Gains Made on Falling Unemployment

The unexpected improvement in the Canadian unemployment rate ahead of the weekend helped to limit the downside potential of Canadian Dollar (CAD) exchange rates.

With the Canadian labour market data in a more robust state of health than previously thought the prospect of more Bank of Canada (BoC) monetary tightening improved.

Even so, the Canadian Dollar struggled to hold onto this support for long as risk aversion encouraged investors to sell out of risk-sensitive assets.

Although Libya saw fresh oil supply disruption and Chinese demand for oil continued to rise this failed to shore up the market, with Brent crude still trending in the range of US$60 per barrel.

As the oil market looks set to come under further pressure heading into 2019 the outlook of the Canadian Dollar soured.

Worries Over Brexit Dominate GBP/CAD Exchange Rate Outlook

Anxiety over Brexit is likely to dominate the outlook of the GBP/CAD exchange rate in the days ahead, with the future of the UK economy plunged into uncertainty once again.

Until investors see some greater sense of clarity over Brexit and the domestic political landscape the mood towards the Pound is unlikely to improve.

If the odds of a no-deal Brexit appear to increase this could weigh heavily on GBP exchange rates, with little time now remaining before the March 2019 deadline.

The threat of a potential leadership challenge against May, a general election or even another referendum should keep the Pound under pressure for the foreseeable future.

Another contraction in the RICS house price balance could add to the bearish outlook of the Pound on Thursday, meanwhile.

Stronger Housing Market to Limit Canadian Dollar (CAD) Exchange Rate Weakness

Demand for the Canadian Dollar could pick up if October’s new housing price index shows an improvement, following on the heels of the better-than-expected housing starts and building permits data.

Signs that the domestic housing market is recovering some of its steam could encourage greater confidence in the outlook of the economy as a whole and set CAD exchange rates on a stronger footing.

However, even if Canada’s housing data proves positive the Canadian Dollar could still come under pressure as a result of a general sense of market risk aversion.

As long as trade tensions between the US and China continue to flare the appeal of the risk-sensitive CAD is likely to diminish, especially as market jitters also put oil prices under pressure.

Without a sustained recovery in oil prices and hopes of a thawing in US-China trade relations the upside potential of Canadian Dollar exchange rates should prove limited.

Hannah Wilson

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