Sterling’s early year run against the CAD has softened of late, with the Pound finding resistance around 1.65. The CAD has found support over the past week, with the pair now trading around 1.63.
Much of the current market sentiment is being driven by the UK’s on-going Brexit saga and with further developments over the coming weeks, I expect this trend to continue.
UK Prime Minister Theresa May is currently hoping the governments Brexit bill is passed through the House of Lords, which would allow them to trigger Article 50 of the Lisbon Treaty. With the Prime Minister sticking stringently to her March deadline, any delay to this timeline would likely cause further uncertainty among investors and in turn we could see GBP/CAD rates head back below 1.60.
Although I expect the bill to be passed when MP’s meet again to discuss this next week, we just don’t know how the situation is going to develop due to the unique scenario the UK finds itself in. No country has ever left the EU and as a result, no real contingency plan is in place to facilitate our exit.
There are still many questions to be answered in terms of what, if any, trading relationship we will have left with the EU? No doubt the UK will need to negotiate new trade deals elsewhere, a process which could take years before they come to fruition. Whilst it is not all negative for the UK, as a strong run of recent economic data has proved, we just don’t have enough answers in my opinion to make a frim decision either way.
For this reason I am wary about gambling on the current market and whilst the Pound has gained a foothold in the market over recent weeks, I’m not convinced we will see sustainable Sterling strength under current conditions.
Every time the Pound takes two steps forward it seems to retract and this indicates that the UK economy remains extremely fragile in the eyes of investors.
The Canadian economy also needs to be focused on, as due to their reliance on their export trade, any positive developments in this sector will likely strengthen the CAD as a result.
Canadian Prime minster Justin Trudeau met with President Trump this week and with positive noises regarding increased trade deals between the two countries, could the CAD find further support over the coming days?
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