Hopes of Potential UK-EU Deal Buoy GBP/CAD Exchange Rate

Hopes of progress towards a viable UK-EU trade deal helped to keep the GBP/CAD exchange rate on a positive footing, in spite of the latest rise in UK unemployment.

Last Week: GBP/CAD Driven to 9-Month Low on Brexit Anxiety

Support for the Pound weakened sharply ahead of the weekend as the previously stated deadline for UK-EU trade talks approached with no sign of an agreement.

Growing fears of a potential no-deal Brexit outcome saw the GBP/CAD exchange rate slumped to its lowest level since March.

Although the Bank of Canada (BOC) opted to leave interest rates on hold at its December policy meeting this failed to give the Canadian Dollar any significant boost, meanwhile.

With the central bank looking set to keep interest rates lower for longer investors saw limited reason to favour the Canadian Dollar over its rivals, although this was ultimately not enough to lift the GBP/CAD exchange rate.

Three Things to Watch out for This Week

1. UK-EU Trade Talks

As long as investors continue to see reason to bet that a UK-EU agreement remains on the table this could give the GBP/CAD exchange rate a further boost in the coming days.

On the other hand, if talks fail to yield a deal before the rapidly approaching end of the transition period this could expose the Pound to a fresh bout of selling pressure.

2. UK Consumer Price Index

Some support for the Pound could fade on Wednesday, meanwhile, with forecasts pointing towards a weakening of the UK inflation rate.

Evidence that inflationary pressure continued to weaken in November may give the Bank of England (BoE) greater cause for concern, leaving the GBP/CAD exchange rate on the back foot.

3. Canada Consumer Price Index

On the other hand, the Canadian Dollar could find a boost on the back of the latest Canadian inflation data.

If the headline inflation rate picks up on the year as anticipated this could see CAD exchange rates trending higher, in spite of the current dovish outlook of the BOC.

GBP/CAD Outlook

Speculation over a potential UK-EU trade deal and the latest inflation data could see the GBP/CAD exchange rate struggle to hold onto its recent gains in the days ahead.

Louisa Heath

Contact Louisa Heath