GBP/CAD is in red on Monday despite the increased optimism. At the time of writing, one British pound buys 1.7555 Canadian dollars, down 0.02% as of 10:20 AM UTC.
At the end of last week, the pair exploded over 3.4% after UK election results showed that Prime Minister Boris Johnson’s Conservative Party secured a major victory. However, the pound has lost almost half of those gains starting from Friday. The Loonie is surging as the upcoming phase one trade deal between the US and China is boosting sentiment.
The sterling has been under increased pressure after the IHS Markit and CIPS published the early readings of the UK purchasing managers’ index (PMI) in the manufacturing and services sectors. According to the updated economic indicators, British businesses saw their worst decline since mid-2016, with both manufacturing and services unexpectedly accelerating their declines.
The composite PMI, which merges the two sectors, declined to 48.5 from 49.3 in November, which is the lowest level since July 2016.
The PMI for the services sector, which dominates the UK economy, dropped to 49.0 in December from 49.3 in November, the lowest since July 2016. Economists surveyed by Reuters expected an increase to 49.5.
The manufacturing PMI fell to 47.4 from 48.9, also below forecasts. The factory output tumbled to its lowest level since July 2012.
The PMI data suggests that the British economy is about to contract in the fourth quarter, IHS Markit says. On the other side, previous PMI readings showed excessive weakness mainly because of increased government spending before Brexit.
Note that this is a flash reading, being the second month for which IHS Markit releases flash PMIs for the UK. November’s flash PMI data were revised up by a lot when the final figures came out.
IHS Markit chief business economist Chris Williamson commented:
“Any positive aspects of the survey came largely from the sentiment indicators, with future expectations rising to the highest since June as firms hope that the election will bring clarity on the outlook and remove some of the uncertainty that has been holding back demand.”
The final data of the manufacturing and services PMIs will be published on January 2 and 6.
