GBP/CAD Advances on UK Services PMI Data

GBP/CAD is confidently advancing on Monday, gaining 0.46% as of 10:22 AM UTC. Currently, the pair is trading at 1.7067.

The sterling extended its gains after IHS Markit released the UK services purchasing managers’ index (PMI). The indicator suggested that the UK’s services sector, which dominates the economy, left the contraction territory despite the economic stagnation. Interestingly, optimism among services firms surged after UK Prime Minister Boris Johnson secured a historic victory in the election.

The services PMI rose last month to 50.0 from November’s 49.3 and a preliminary reading of 49.0. Analysts expected a modest increase to 49.1 in December.

The index component showing business expectations touched its highest level since September 2018. Also, order books rose for the first time in four months.

Thomas Pugh, UK economist at consultancy Capital Economics, commented:

“Today’s release suggests that there could be a post-election bounce in the data over the next few months as confidence improves. If this is confirmed in January and February then it should be enough to convince the Bank (of England) to keep rates at 0.75%.”

The revision to the business expectations sub-index was the largest since 2015.

The services PMI was based on survey responses gathered between December 5 and 19, while the preliminary PMI was based on responses between December 5 and 12. The UK election was held on December 12.

The composite PMI, which merges both the services and manufacturing figures, rose to 49.3 in December, from 48.5 in November.

Johnson’s victory allows him to control the Brexit progress, meaning that the UK will likely leave the bloc on January 31. However, the PM refused to extend the deadline for the transition period set for December 2020. Some economists are worried that the tight timeline might lead to a no-deal Brexit.

John Springford, deputy director at the Center for European Reform, stated:

“I would be surprised if optimism is sustained, unless Boris Johnson extends (the) transition (or) finds ways to deepen the trade agreement.”

So far, surging oil prices amid tensions in the Middle East couldn’t support the Loonie against the British pound.

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