Bank of Canada’s Tone Boosts Pound Sterling to Canadian Dollar (GBP/CAD) Exchange Rate Recovery

Pound to Canadian Dollar Exchange Rate Climbs despite Brexit and Election Uncertainties

Despite expectations for a month of uncertainty ahead of Britain’s December general election, the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate has seen strong gains this week, at least partially due to Canadian Dollar (CAD) weakness.

Since opening this week at the interbank level of 1.67, GBP/CAD has been trending higher amid a lack of Canadian Dollar support.

Last night, CAD weakened further and GBP/CAD has more easily recovered last week’s losses, trending nearer last week’s opening interbank levels of 1.70 at the time of writing.

This also left GBP/CAD very close to its best levels in four months.

A volatile Pound (GBP) has more easily gained against the Canadian Dollar due to speculation that the Bank of Canada (BoC) could become more dovish.

Pound (GBP) Exchange Rates Gain despite Month of Election Uncertainty

This week has been an eventful week in UK politics, but it has made Pound (GBP) investors hesitant to make any big movements as markets will now want to await the outcome of an upcoming UK general election.

As the Brexit date was confirmed to be delayed until the 31st of January, UK Parliament decided that Britain would head to the polls on the 12th of December. It will be the first December general election in almost a century.

Sterling has been supported by hopes that a no-deal Brexit will now be much easier to avoid.

The ruling Conservative Party is seen as the party most likely to win the election, after which it could pass its relatively soft Brexit plan, which would be a Pound-positive outcome. According to Mark Dowding, Chief Investment Officer at BlueBay:

‘In an election, the Tories are widely expected to win and implement the Johnson deal,

If they fail to win, they will still most probably be the biggest party in Westminster and we could have a referendum on the Johnson deal or no Brexit altogether.’

Still, uncertainties over the large number of possible election outcomes are weighing on the Pound’s potential for gains as well.

Canadian Dollar (CAD) Exchange Rates Tumble as Bank of Canada (BoC) Leaves Door Open for Rate Cut

While the Bank of Canada (BoC) avoided cutting Canada’s interest rates in its October policy decision as expected, the bank’s slightly cautious shift in tone was enough to cause fresh Canadian Dollar (CAD) weakness overnight.

The Bank of Canada indicated that it could take action to protect Canada’s economy as policymakers become more concerned about Canada’s growth outlook.

The bank said that while current policy was appropriate, Canada’s economy would be ‘increasingly tested as trade conflicts and uncertainty persist.’

While bets for a December interest rate cut are still fairly low, analysts such as James Knightley from ING believe they should be higher:

‘We think that these probabilities are still too low. After all, the latest jobs report showed employment creation was all in the public sector with private-sector jobs falling 21,000.’

On top of Bank of Canada rate cut speculation, the trade-correlated Canadian Dollar was also less appealing amid a fall in prices of oil, Canada’s most lucrative export.

Pound to Canadian Dollar (GBP/CAD) Exchange Rate Investors Await Canadian Growth Report

The Bank of Canada (BoC) has taken a slightly more cautious tone amid concerns about Canada’s economy being impacted by slower global activity, so Bank of Canada interest rate cut bets could be further influenced by upcoming Canadian data.

This week’s most influential Canadian dataset will be this afternoon’s Gross Domestic Product (GDP) growth rate report from August. Canadian growth is expected to have improved slightly to 0.2% month-on-month.

If the growth report disappoints, Bank of Canada interest rate cut bets could rise and the Canadian Dollar would weaken.

Tomorrow’s Canadian manufacturing PMI from Markit will be published tomorrow and could also give investors a better idea of how Canada’s economy is faring.

As for the Pound, any surprising developments in UK politics are likely to cause movement in the Pound to Canadian Dollar (GBP/CAD) exchange rate.

Josh Jeffery

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