At the back end of last week the pound dropped 2 1/2 cents against the Canadian dollar due to investors slashing the odds on an interest rate cut from the central bank.
Strong employment data strengthens Canadian dollar
106,500 jobs were added to the Canadian economy on Friday with forecasters predicting only 10,000 would be created. The chances of the Bank of Canada cutting interest rates now is extremely unlikely and that’s why the Canadian dollar has strengthened against sterling and CAD/USD breached a 9 day high.
Canada are set to release their latest Consumer Price Index numbers Wednesday afternoon. Inflation is set to rise to 1.8% and this will put the nail in the coffin in regards to not cutting interest rates anytime soon. If inflation rises I expect GBP/CAD to be lower at the end of the week.
Theresa May urged to abandon cross-party talks
UK Prime Minister Theresa May also came under severe pressure last week to resign and only this morning members of her cabinet are urging the PM to give up on the cross-party talks with labour and give MPs a vote once more. This is no surprise. I can’t see the Prime Minister giving in to a permeant customs union or a peoples vote therefore it’s only a matter of time until she takes the advice from her cabinet and puts it back to parliament.
UK economic data
A positive for the UK economy and therefore the pound last week was that GDP was released at 0.5% and forecasters were predicting 0.2%. In addition manufacturing and production numbers also exceeded expectation, however there is an argument to suggest companies are stockpiling due to the uncertainty of Brexit and at some point these numbers could start to disappoint.
This week UK unemployment rate and average earnings numbers are back in the spotlight. Chancellor Philip Hammond’s shining light is that Unemployment remains at record lows therefore this data release should be watched closely. If unemployment rate remains at 3.9% the pound should remain range bound, anything other than 3.9% could cause volatility for GBPCAD exchange rates. In addition the ongoing Brexit saga will continue to bubble away in the background, if this is the week Theresa May announces that the cross party talks are over, it will be interesting to see how the pound reacts. Will investors see this as a positive as a second referendum looks one step closer?
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