GBP/CAD managed to depart even further from the two-month low touched early on Monday. Currently, the pair is trading at 1.7016, up 0.09% as of 9:00 AM UTC.
Yesterday, the US and China finally signed the phase one trade agreement, but that hasn’t helped the Loonie a lot. There is still much skepticism on how the deal will be approached by the world’s two biggest economies.
The Trump administration imposed a dispute settlement and enforcement mechanism to avoid any non-compliance. In other words, the US is ready to impose its tariffs in proportion to the damage caused by the violation of the agreement. Elsewhere, China, which would act as the offending party in this case, can exit the deal rather than appeal or impose tariffs in response. The agreement document says:
“If the Party Complained Against considers that the action of the Complaining Party was taken in bad faith, the remedy is to withdraw from this Agreement by providing written notice of withdrawal to the Complaining Party.”
While “good faith” and “bad faith” were not defined, the actions would rely on economic impact. This shows that the agreement is fragile because any enforcement could lead to a collapse in the trade relationship between the US and China.
This, and other issues of the agreement, including persisting differences of viewpoints, has held trade-reliant currencies under pressure.
The British pound has benefited from the situation and continues its upward movement.
Earlier today, the UK Royal Institution of Chartered Surveyors (RICS) said that the housing market last month was driven by Prime Minister Boris Johnson’s big victory in the election. The monthly RICS house price balance surged to -2, from -11 in November, which is the highest level since June.
RICS Chief Economist Simon Rubinsohn said:
“The sales expectations indicators clearly point to the prospect of more upbeat trend in transactions emerging with potential purchasers being more comfortable in following through on initial enquiries.”
Nevertheless, in the longer-term, the pound will continue to be under pressure as the Bank of England plans to cut the interest rates, citing ongoing signals of a dormant economy.
