- Canadian markets are closed in observance of Family Day
- Investors focusing on GBP
- Post-Brexit trade negotiations
GBP/CAD is declining on Monday, losing more than half of its gains from last Thursday’s rally. Currently, the pair is trading at 1.7221, down 0.31% as of 12:00 PM UTC.
The Canadian markets are closed in observance of Family Day, so investors are focusing on the sentiment around the British pound, which is mostly decided by the post-Brexit trade negotiations. In fact, considering that oil prices have moved sideways today, the Brexit-related pessimism is the main reason behind the pair’s bearish mood.
Britain and the European Union are set to begin the trade talks next week, and France warned that the two sides would “rip each other apart.” French foreign minister Jean-Yves le Drian said yesterday during the Munich Security Conference that Europe would defend its interests, hinting that it wouldn’t compromise its single market. On the other hand, UK Prime Minister Boris Johnson is seeking a Canada-style trade agreement that would allow Britain to enjoy all benefits of the European market while maintaining its own rules.
The French official said:
“I think that on trade issues and the mechanism for future relations, which we are going to start on, we are going to rip each other apart. But that is part of negotiations, everyone will defend their own interests.”
The UK left the European Union on January 31, but the two sides have to reach a trade agreement by the end of this year. The tight timeline was imposed by Johnson, but European leaders claim that such a complex deal requires at least two years of negotiations. Le Drian also expressed his worries that 11 months might not be enough for reaching consensus. In this case, Britain might end up with a hard Brexit, which scares economists because it means that the country would separate from the single market.
The GBP/CAD rate recently stabilized and left its daily lows after IHS Markit presented another sign of confidence among British consumers. The so-called household finance index, which shows how UK citizens feel about their finances, touched a record level in February, increasing to 47.6, from 44.6 in January. This is the best reading since the poll started 11 years ago.
IHS Markit economist Joe Hayes said:
“Our latest Household Finance report signals a number of developments that should keep the Bank of England doves at bay and build optimism towards the UK’s immediate economic prospects.”