GBP/CAD Declines Ahead of BOC Rate Decision

GBP/CAD turns bearish on Wednesday, after surging 0.94% yesterday.

Currently, one British pound buys 1.7073 Canadian dollars, down 0.42% as of 10:00 AM UTC.

Pound Loses Support After Release of Services PMI

Yesterday, UK’s construction activity data helped the sterling dominate the pair, but the British currency made a turn after IHS Markit published the services purchasing managers index (PMI), which grew slightly less than expected. Nevertheless, Britain’s gross domestic product (GDP) increased at its fastest pace since September 2018 in February.

Growth in manufacturing and services industries was negatively influenced by the coronavirus outbreak.

The composite PMI rose to 53.0 last month from 52.8 in February, as the unexpected surge in building activity helped to offset the losses in momentum of services and manufacturing industries.

The services PMI dropped to 53.2 from a preliminary estimate of 53.3 and a 16-month peak of 53.9 in the first month of 2020.

The 50 mark separates growth from contraction. IHS Markit economist Chris Williamson commented:

“Whether this expansion can be sustained in coming months is starting to look increasingly at risk. The survey data leave policymakers juggling between current signs of both improved economic growth and rising prices, while risks to the outlook have clearly intensified.”

PMI data suggests that the UK’s economy is accelerating at a quarterly pace of 0.2%, which is faster than at the end of last year. However, the coronavirus epidemic would hurt momentum. Bank of England Governor Mark Carney said yesterday that the impact of the virus might be significant and the central bank was working on potential measures.

On Tuesday, the British government revealed a “battle plan” to address the spread of the new coronavirus, warning that up to 20% of employees might be off work when the epidemic peaks. So far, 51 cases of COVID-19 have been reported in the UK. Prime Minister Boris Johnson stated that it was very likely that the number of cases will increase.

The government might close schools, encourage home working and cancel large-scale meetings of all kinds to impede the spread of the epidemic.

“This is a national challenge … I think we’ll get through it in very good shape,” the PM said.

The pair might become even more volatile later today as the Bank of Canada will present its interest rate decision and statement.

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