Just last week, the UK pound sterling (GBP) hit a 24-year low against the Canadian Dollar when it also hit five-year lows in UK inflation. The pound is currently weakening again as a result of the latest Bank of England reports on lower than expected Q3 GDP growth, which actually contracted 0.4%.
Ashraf Laidi, CMC Markets strategist, points out in an interview with BNN that this string of five consecutive declines in UK GDP is the longest series of declines for the UK on record. The UK continues to experience weak housing, retail, manufacturing and construction sectors, although the pace of deterioration in lessening.
UK Currency Outlook and Foreign Investors
Laidi explains that what we saw yesterday was a “good opportunity to sell into the rally in sterling” that the pound has seen since March. Furthermore, the outlook for the pound won’t be improving in the near term because the Bank of England will have to continue its bond purchase program.
As a result, if traders need to pare back some of their risk trades in the Brazilian real, for example, and come back in to US dollars, they are probably also going to take the opportunity to sell some GBP at the same time.
Laidi believes the Canadian dollar will continue to hold its ground both against the UK pound, but also against the USD due to strong jobs reports last month which place the loonie in an enviable “second place” against the Australian dollar.
Q3 economic data from Europe has not come out yet.
All the weakness in the pound makes UK stocks look extremely rosy in the eyes of Canadians, who are experiencing an unseasonably high loonie now. Canadian investors in particular might want to take advantage of the good time to buy UK stocks by considering some of these UK stocks with dividends.
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