Pound Drops as Canadian Dollar Rises

Once again, the Canadian dollar was the best performing currency today. It started off with a rally on Friday, due to the surprisingly positive employment data and then gained even further on Monday after Carolyn Wilkins- Senior Deputy Governor- emphasized that the nation is recovering also giving to policy makers to reason to be encouraged. CAD could be driven higher for some time, and therefore, going in for a fundamental reassessment. In any occasion, the Canadian dollar could become more dependent on economic data and less dependent on oil.


On the other hand, the pound dropped even further as it is apparent that the views of the British political parties didn’t change. This resulted in the country to be in a much worse position than it was before the general election. The Prime Minister, Theresa May struggles to negotiate without losing her job and a replacement is only likely to come from the “hard Brexit” side of her party. As a result, the scenario of the UK leaving the EU in two years without an agreement has increased- this the worst possible scenario for GBP. This uncertainty will most likely make the domestic economy to suffer with a predicted further GBP weakness.
Gold decreased for the fourth day in a row and the VIX index is at its lowest form since 1993. Despite the socio-political crisis in Washington and Britain, investors do not seem to be very worried about the outlook of the market.



The German ZEW survey, which provides an early analysis on the intentions of analysts and investors shows that both indicators are predicted to rise in relation to the generally improved economic conditions in the European Union and all incoming data are perceived as euro positive.



The US PPI (Producer Price Index) is predicted to decline in factory gate inflation. This may turn out to be USD-negative in combination with the concerns regarding FOMC‘s fading inflationary pressures.



On a final note, the European Commission (EC) may declare its initial decision regarding the euro-denominated clearing outside of the EU. As soon as Britain exits the EU, the EC will have no supervision rights due to the fact that the majority of this business takes place in the UK. There are three possible decisions to be considered, with the last one forcing the entire euro business to be cleared in the EU which will have a clear negative effect for GBP.
Source: Claws & Horns

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.

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