Pound Canadian Dollar (GBP/CAD) Exchange Rate Loses Ground as UK PMIs Signal December Contraction

UK PMI Contractions Limit Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Support

The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate failed to hold onto its positive footing this morning as December’s flash UK PMIs fell short of forecast.

With both the manufacturing and services PMIs still trapped in negative growth territory the economy appears on track to contract in the fourth quarter, reflecting recent months of domestic uncertainty.

As Chris Williamson, Chief Business Economist at IHS Markit, noted:

‘December’s PMI survey data sadly lacked festive cheer, indicating that the economy contracted for the third time in the past four months. The latest decline was the second largest recorded over the past decade, and increases the likelihood that the economy contracted slightly in the fourth quarter as Brexit-related uncertainty intensified in the lead up to the general election.’

However, as the previous set of flash PMIs saw a solid upward revision the ultimate impact of the report proved limited, allowing Pound Sterling (GBP) to avoid any sharp downturn.

Signs of US-China Trade Progress Shore up Canadian Dollar Demand

News that the US and China have agreed a preliminary phase one trade agreement encouraged the risk-sensitive Canadian Dollar (CAD) to gain fresh ground today.

As the move saw the US hold off on imposing a fresh set of tariffs on Chinese produce this prompted a sense of market optimism, even though the details of the deal have yet to emerge.

With the risk of a fresh escalation in global trade tensions fading CAD exchange rates found renewed traction, in spite of a lack of supportive domestic data.

However, the Canadian Dollar could struggle to maintain an uptrend for long if market doubts over the US-China trade agreement pick up in the days ahead.

GBP/CAD Exchange Rate Braces for Softer UK Inflation Rate

Fresh volatility looks likely for the GBP/CAD exchange rate on Wednesday, meanwhile, with the release of November’s UK consumer price index report.

Forecasts point towards the headline inflation rate easing from 1.5% to 1.4% on the year, a decline which could weigh the Pound down against its rivals.

Evidence that inflationary pressure within the UK failed to pick up could encourage the Bank of England (BoE) to maintain a dovish outlook at its December policy meeting.

As long as markets see reason to bet that the central bank could cut interest rates in 2020 support for GBP exchange rates looks set to weaken in the near term.

Canadian Dollar Exchange Rates Vulnerable Ahead of Inflation Data

The mood towards the Canadian Dollar could sour, on the other hand, unless November’s Canadian inflation data impresses.

With the monthly inflation rate expected to dip from 0.3% to -0.1% this could cast a fresh shadow over the outlook of the Canadian economy.

Fresh signs that price pressures are struggling to pick up before the end of the year may give markets reason to bet on a potential dovish turn from the Bank of Canada (BOC).

However, as forecasts suggest an uptick in the headline inflation figure the data could still offer the Canadian Dollar a rallying point against its rivals, to the detriment of the GBP/CAD exchange rate.

Louisa Heath

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