by Jon Beddell
Foreign Currency Market Update – GBP / CAD Update
Sterling rebounded from the 1.60 level last week after data showed that retail sales rose 1.1% in July, more than the 0.4% that analysts were expecting. The minutes from the latest Bank of England meeting were released on Wednesday, quashing speculation that the monetary policy committee were moving toward an easing stance. The 8-1 vote showed that Andrew Sentance continued to call for a rate hike despite recent soft data on housing and reports from the BoE that mortgage and business lending are still declining. Investors took comfort from the minutes, taking some pressure off the Pound and allowing it to move higher against most other currencies with the exception of the US dollar which is benefiting from its safe haven status in the face of growing risk aversion.
The Canadian dollar strengthened in the early part of last week after BHP Billiton made a $38bn bid for Canada’s Potash Corp. The merger excited traders because it would create a surge in demand for Canadian currency in order to pay for the merger. However, once the market had factored this in it looked back to other data and decided that a raft of weaker US data and a modest dip in Canadian inflation in July was reason enough to send the currency lower again.
The technical outlook is positive. The trend is still for a stronger pound, and last week’s bounce from 1.60 puts the market in a good position to have another crack at the 1.65 level. A daily close above there would significantly increase the chances of seeing 1.70 – 1.75 over the next few weeks. On the downside, a break below 1.60 would be cause for concern.
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