Lingering Hopes of UK-EU Trade Deal Support GBP/CAD Exchange Rate

Mixed signals over the possibility of a UK-EU trade deal saw the GBP/CAD exchange rate shifting ahead of the weekend, with a renewed sense of hope ultimately pushing the pairing higher.

Last Week: Potential for UK-EU Deal Keeps Pound on Uptrend

As Boris Johnson did not opt to walk away from talks with the EU, in spite of his self-imposed deadline passing, this encouraged the Pound to recover some ground.

However, the upside potential of GBP exchange rates was still limited thanks to a government spokesperson subsequently suggesting that the two sides are still not close to a deal.

The mood towards the Canadian Dollar deteriorated, meanwhile, as fears of reduced global oil demand pushed down prices in the wake of the latest OPEC+ discussions.

As August’s Canadian manufacturing sales remained in a state of decline this added to the bearish outlook of CAD exchange rates, undermining confidence in the health of the domestic economy.

Three Things to Watch out for This Week

1. UK Consumer Price Index

With forecasts pointing towards the monthly UK inflation rate returning to positive territory in September the Pound could find fresh support on Wednesday.

As long as inflation picks up from the -0.4% seen in August the risk of further Bank of England (BoE) policy action looks set to diminish, to the benefit of GBP exchange rates.

2. Canada Consumer Price Index

The Canadian Dollar, on the other hand, may come under renewed pressure on the back of the latest Canadian consumer price index report.

With investors expecting to see the inflation rate continue to trail significantly short of the Bank of Canada’s (BOC) inflation target the data is unlikely to offer CAD exchange rates any cause for confidence.

3. Canada Retail Sales

However, August’s retail sales figures may encourage a greater sense of optimism in the underlying health of the Canadian economy.

Signs that consumers continued to spend at an increasing rate could limit anxiety over the wider impact of the Covid-19 crisis, offering the Canadian Dollar a boost against its rivals.

GBP/CAD Outlook

Evidence of inflation returning to positive territory in the UK may improve the GBP/CAD exchange rate’s traction, barring any fresh bout of anxiety over Brexit.

Louisa Heath

Contact Louisa Heath