London: The UK’s pound sterling and the Canadian dollar have outperformed their major peers this year so far, despite both their respective countries facing significant political risks, along with foreign trade headwinds.
Kristian Rouz — Amid the mounting risks of a ‘no-deal’ Brexit in the UK, and the lingering trade tensions between Canada and the US, the British pound and the Canadian dollar have strengthened over the past few months.
The cable and the loonie — as the two currencies are known among traders — have defied political risks and enjoyed solid demand in the international market due to the strength of the British and Canadian economies this year.
According to current market data from Bloomberg, the British pound rose 2.3 per cent to $1.3381 as of Friday, posting its biggest year-to-date advance since April 2017. The appreciation of the British currency comes as economic growth in the UK has been better that in the Eurozone — despite the lingering speculation a disorderly Brexit could hurt the British economy.
The pound’s rise, however, is expected to have negative consequences to the British exports, while making imported goods more competitive in the UK’s domestic market. However, Britain has enjoyed an increase in exports over the same period, while its public finances have also improved — as reflected in the Spring Address by the Chancellor of the Exchequer Philip Hammond.
In this light, investor confidence of the British currency and the broader economy has also improved — despite the recent political events, including the second failure of Prime Minister Theresa May’s Brexit deal in the Commons.
The British pound has also strengthened against the common currency — rising to £0.8493 per 1 euro, or 1.6 percent year-to-date increase. The cable is now the best-performing currency amid its G-10 peers — in which light hardline Brexiteers in the British Parliament have urged the government to defy calls against a ‘no-deal’ Brexit.
For its part, the Canadian dollar rose sharply at the beginning of this year, despite US tariffs on Canadian steel and aluminium still being intact.
The Canadian economy grew 1.8 per cent in 2018 compared to a 3.0-per cent expansion the previous year — yet, investors believe the ongoing gains in oil production, as well as steady growth in Canada’s manufacturing sector, could result in quicker GDP expansion this year.
The Bank of Canada has kept its base borrowing costs at 1.75 percent earlier this month, despite calls for higher interest rates amid strong macroeconomic fundamentals. The central bank’s governor Stephen Poloz said interest rates could go up to the range of 2.5-3.5 percent, however, he noted, there’s too much uncertainty and international headwinds to take hurried steps towards that goal.