GBP/CAD weakened for most of 2016, and especially following the Brexit vote. After strengthening slightly in January 2017, the pair took off in April following Theresa May's call for an early election. As the Conservatives fared poorly in the following election, GBP/CAD gave back most of its initial gains. The Canadian dollar also strengthened substantially in the latter half of 2017, given strong economic growth and interest rate hikes.
Pound sterling is moving up today against all major currencies except the euro and the Australian dollar. Yesterday, the pound reversed course after the Bank of England's chief economist unexpectedly signaled his support for a rate hike. The British pound/US dollar pair found buyers just below the low end of yesterday's daily trading range (1.310). Today's GBP/USD trading range is 1.310 - 1.3470. After moving up for the last two trading sessions, the pound is no longer looking oversold.
Looking at the Bank of England's decision more closely, the BoE held rates at 0.50% yesterday and maintained its existing policies (including quantitative easing). The big change was that BoE Chief Economist Haldane is now supportive of another rate hike. Beyond Haldane's change of heart, the institution also stated that household spending and business sentiment have improved markedly. Members of the BoE are also more confident that the slowdown seen in the first quarter is temporary. All in all, Haldane's change of stance and the BoE's upbeat statement suggest a higher likelihood of a future rate hike. Unsurprisingly, the pound rallied from oversold conditions and continues to make gains today. Looking at trading patterns, yesterday's move up was accompanied by significant trading volumes, a bullish signal in the short-term.
While positive news is helping the pound recover, the longer-term outlook for the currency is not particularly benign. Thanks to an ongoing deceleration in European growth, expect the pound to remain in a bearish trend for the foreseeable future. Those looking to short the currency may consider entering the trade towards the top-end of our daily trading range. Our outlook on the pound remains bearish.
GBP/USD is currently above 1.330. EUR/GBP is up slightly, with the exchange rate above 0.8760. The pound is down slightly against the Australian dollar and up against the Canadian dollar. GBP/AUD is currently above 1.7910, while GBP/CAD is above 1.7670. GBP/JPY is up, and currently trading above 146.60.
|June 18||Rightmove House Price Index YoY JUN||1.6%||1.1%|
|June 21||Public Sector Net Borrowing MAY||-£3.36b||-£5.27b|
|June 21||BoE Interest Rate Decision||0.5%||0.5%|
|June 21||BoE Quantitative Easing||£435b||£435b|
|June 21||BoE MPC Vote Hike||3/9||2/9|
|June 21||BoE MPC Vote Cut||0/9||0/9|
|June 21||BoE MPC Vote Unchanged||6/9||7/9|
|June 21||BoE Gov Carney Speech|
|June 22||BoE Quarterly Bulletin|
The Canadian dollar is mixed today. The loonie is currently selling off against the US dollar, while strengthening against the euro and the British pound. Yesterday, the Canadian dollar continued to weaken against the US dollar, and is currently trading near 12-month lows. Today's USD/CAD trading range is 1.3070 - 1.3330.
As the outlook for Canada darkens, the odds of a Bank of Canada rate hike are falling. This can be seen in falling bond yields for short-term Canadian government bonds. While 2-year US Treasury bond yields continue to rise (and are currently yielding 2.56%), equivalent bond yields in Canada are falling and are currently yielding just 1.85%. Beyond the differential in bond yields (0.71%), yields are also moving in the opposite direction. This is a particularly bearish sign, and suggests that the Canadian dollar is likely to keep weakening.
Beyond bearish signals from the bond market, the Canadian dollar remains under pressure thanks to decelerating growth, ongoing trade tensions and weakness in crude oil prices. More recently, the Canadian real estate market is also showing signs of jitters, with sales volumes falling to a nine year low according to recent figures from the Canadian Real Estate Association. With plenty of reasons for the currency to keep weakening, our outlook on the loonie remains bearish. Note that there are no major updates relating to NAFTA today.
The USD/CAD exchange rate is currently above 1.3320. The euro is down against the Canadian dollar, with EUR/CAD currently above 1.5350. The pound is down slightly against the Canadian dollar, with GBP/CAD trading above 1.7460. CAD/JPY is flat, and currently trading above 82.80.
|June 21||ADP Employment Change MAY||30.2K|
|June 21||Wholesale Sales MoM APR||1.1%|
|June 22||Inflation Rate YoY MAY||2.2%|
|June 22||Core Inflation Rate YoY MAY||1.5%|
|June 22||Retail Sales YoY APR||4.1%|
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