British Pound to Canadian Dollar Exchange Rate Surges Higher as Brexit Declaration Agreed

The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate made solid gains on Thursday morning after the UK and EU agreed an expanded political declaration on their future relationship.

This development prompted markets to lower the odds of a no-deal Brexit, giving the Pound a strong boost across the board.

Although reaction to the details of the declaration proved mixed, with many MPs still appearing minded to vote against the proposed Brexit deal, this was not enough to weigh down GBP exchange rates.

Even the threat of Spain voting down the declaration failed to temper the bullishness of the Pound over the course of the morning.

Demand for the Canadian Dollar, meanwhile, remained generally limited thanks to the persistent weakness of the oil market.

With Brent crude still trapped beneath the US$65 per barrel mark, in spite of expectations for a 2019 OPEC-led production cut, the appeal of the commodity-correlated CAD diminished.

As oil remains one of Canada’s key exports the recent slide in prices has weighed heavily on CAD exchange rates, especially as confidence in the domestic economic outlook has already dimmed.

The Canadian Dollar could come under fresh pressure ahead of the weekend if Friday’s consumer price index data fails to impress.

While forecasts point towards a rebound from -0.4% to 0.1% in the monthly CPI reading this may not be enough to convince investors of the strength of underlying inflationary pressures.

Unless the inflation rate continues to trend sustainably above the Bank of Canada’s (BOC) 2% target the case for another interest rate hike is unlikely to mount.

September’s Canadian retail sales data may struggle to impress investors, meanwhile, with forecasts pointing towards a stagnation on the month.

Without evidence of greater economic resilience the appeal of the Canadian Dollar is likely to remain generally limited.

However, the GBP/CAD exchange rate may struggle to hold onto its recovered ground for long thanks to the volatile nature of UK politics.

Another pushback against Theresa May’s Brexit plan could see the Pound return to a downtrend, with markets still uncertain that the deal will survive a parliamentary vote.

If the threat of a Conservative leadership challenge appears to pick up once again this could also weigh heavily on GBP exchange rates.

As long as a sense of uncertainty continues to hang over the political outlook of the UK the Pound will remain vulnerable to selling pressure.

Tim Riddell, research analyst at Westpac, commented:

<blockquote>‘The situation remains extremely fluid and the risk of a Tory Party leadership challenge is still high. If that were to occur, there could be a push towards a no-deal Brexit.

‘While such uncertainty is so high, there is increasing risk of business investment and consumer activity being postponed.

‘As potential outcomes wax and wane, GBP will be equally uncertain. A shift now towards May’s deal will be positive for GBP. More uncertainty or a swing towards a no-deal Brexit will weigh heavily on GBP.

‘Such binary risks mean that it is increasingly difficult to have confidence in directional bias for GBP.’</blockquote>

Even so, the Pound could still benefit from the softness of the Canadian Dollar in the days ahead.