Pound Canadian Dollar (GBP/CAD) Exchange Rate Surges on Bets of Brexit Extension

Hopes of Softer Brexit Resolution Bolster Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate

An increased sense of optimism over the likelihood of the UK avoiding a no-deal scenario helped to drive the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate sharply higher today.

With cabinet members reportedly urging Boris Johnson to request an extension to the current Brexit deadline, complying with the recent parliamentary bill, the mood towards Pound Sterling (GBP) improved.

While a significant degree of uncertainty continues to hang over the political situation in the UK this renewed market confidence was enough to give GBP exchange rates a strong boost heading into the weekend.

As long as investors see a solid chance of the October deadline passing without the UK crashing out of the EU this should keep the Pound on a relatively steady footing.

Forecasts of 2020 Oil Surplus Weighs Heavily on CAD Exchange Rates

In spite of the latest signs of progress towards a potential resolution of the US-China trade dispute market risk appetite faded this morning.

The Canadian Dollar (CAD) came under particular pressure as oil prices experienced a sharp decline, with Brent crude touching US$60 per barrel.

As the latest reports from the Organisation of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) both indicated that 2020 will see another oil surplus this weighed heavily on market sentiment.

With global growth expected to stall further in the coming year, even if trade tensions continue to ease, demand for oil looks set to diminish.

As a result, the commodity-correlated Canadian Dollar fell out of favour, with a decline in the oil market likely to constrain Canadian economic growth.

Canadian Dollar Vulnerable Ahead of Consumer Price Index Report

Looking ahead to next week, CAD exchange rates may remain on the back foot if August’s consumer price index data fails to impress.

If inflationary pressure eases on the year as forecast, dipping from 2.0% to 1.7%, this may limit the case for the Bank of Canada (BOC) to maintain its current neutral policy bias for longer.

Signs that inflation is falling back from the BOC’s 2% target would increase the risk of the BOC turning towards dovishness in the coming months, to the detriment of the Canadian Dollar.

Unless price pressures hold steady this could help the GBP/CAD exchange rate to extend its bullish run further.

Weakening UK Inflation May Fuel GBP/CAD Exchange Rate Slump

Focus will also fall on the UK consumer price index on Wednesday, leaving the GBP/CAD exchange rate open to a potential slump.

With forecasts pointing towards inflation easing from 2.1% to 1.9% on the year this could give Bank of England (BoE) policymakers greater cause for caution.

Even if the headline inflation rate shows an uptick, though, the general air of political anxiety looks set to limit the potential for Pound gains for the foreseeable future.

Until markets are assured that an extended Brexit deadline or an agreeable deal is on the cards GBP exchange rates could struggle to maintain their traction for long.

Louisa Heath

Contact Louisa Heath


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