The Pound to Canadian Dollar exchange rate’s short to long-term outlook is significantly higher after the last week thanks to the week’s surprising UK general election news, as well as underwhelming Canadian inflation data.
GBP CAD surged from 1.66 to 1.72 last week and briefly touched on 2017 highs of 1.73 – its best levels since September 2016.
This was because market optimism on the UK economic outlook as well as the Pound improved when UK Prime Minister Theresa May announced there would be a snap general election on the 8th of June.
Investors became hopeful that May’s Conservative party would easily increase its Parliamentary majority, giving May more space to push through her Brexit plans smoothly and with minimal roadbumps or opposition.
In the long-term, the possibility of a stronger Conservative party majority has improved Britain’s and the Pound’s stability outlooks too. Some analysts have even speculated that May could be more likely to pursue a softer Brexit with a better UK-EU deal if her party has a bigger majority.
This speculation has gotten GBP investors fired up and as a result markets generally overlooked a disappointing UK retail sales report.
Friday saw the publication of Britain’s March retail sales results, which came in well below expectations. Month-on-month retail sales dropped from 1.7% to -1.8% while yearly sales slowed from 3.7% to 1.7%.
Analysts reacted to the figures by suggesting that Britain’s economy was starting to see more evidence of slowing, as UK consumers’ spending habits were negatively affected by rising inflation and slowing wage growth.
However, market optimism surrounding Britain’s upcoming general election improved the Pound outlook enough to overshadow concerns about this report.
The Canadian Dollar’s outlook, on the other hand, has seen little change in the last week. Geopolitical tensions between the US and North Korea remain high, keeping markets averse to risk-correlated currencies like the ‘Loonie’.
Prices of oil, Canada’s most lucrative commodity, have also remained poor over the last week. Friday saw oil on course for its worst weekly drop in a month. This was due to fresh doubts that production cuts from OPEC and other oil producers would have any lasting positive effect on prices of the commodity.
Investors were hardly impressed by the latest Canadian Consumer Price Index (CPI) data either, which came in below expectations.
Monthly inflation remained at 0.2% despite being projected to improve to 0.4%, while yearly inflation slowed from 2% to 1.6% and missed the projected slip to 1.8%.
Unless prices of oil improve or risk-sentiment improves in the coming week, the Pound to Canadian Dollar exchange rate outlook is likely to remain high too.
Next week will see the publication of Britain’s March public sector net borrowing results and Q1 Gross Domestic Product (GDP) projections. Canadian growth data will also be published next Friday – for February.
With markets generally focusing on political developments this month, economic data due for publication next week is unlikely to have a considerable effect on Pound to Canadian Dollar exchange rate movement.
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