25.10.201816:04 Forex Analysis & Reviews: Wednesday Results: PM May Remains in Power and Bank of Canada Tightens Policy

Wednesday turned out to be a busy trading day and decisive in many aspects. In particular, the political fate of British Prime Minister Theresa May was decided yesterday, as well as the prospect of the monetary policy of the Bank of Canada. In both cases, the intrigue remained, and hardly any of the experts could speak with complete confidence about the final result. However, first things first.

The meeting of the "Committee of 1922", a group of British conservative deputies, was held yesterday in London. The current prime minister. They are also called "backbenchers" Looking ahead, I can say that I've been resignation indefinitely. She retained power, however, it's not a convincing power. And yet the worst-case scenario for her was not realized: the committee has not yet begun to pass a vote of no confidence in the premiere, which will allow May to continue to follow a given course.

The meeting of the participants has been closed. So, according to the "soft" Brexit is now very low, despite the 95 percent agreement on the deal. The remaining inconsistent interest rates for the second year. It is not possible to bring together a single denominator. It has been a lot more than a real prospect. Despite such pessimistic comments, the pound stopped its decline this morning and was able to return to the 29th figure together with the dollar.

The reason is obvious. If the chance for a deal remains while under Theresa May's "leadership,", then in case of her resignation, the likelihood of a tough Brexit would increase almost to one hundred percent. In addition, political confusion on the eve of such an important (even historical) event would have exerted a strong pressure on the pound, which could return to two-year lows, that is, to the base of 20 figures. This did not happen, and the British currency remained under the "usual" background pressure in anticipation of the next news on Brexit.

But the Canadian currency yesterday received support from the Bank of Canada. The regulator ignored the weak data on inflation (which was published last Friday) and still raised the interest rate by 25 basis points for the third time this year and the fifth time during this increasing cycle. Moreover, Stephen Poloz retained the "hawkish" attitude and hinted at further tightening of monetary policy. According to him, there is no longer any need to stimulate the Canadian economy. By and large, monetary policy will now have a restraining character. The Canadian regulator said that economic growth has reached "trend values", therefore the task of the Central Bank is to prevent its "overheating".

This means that at the beginning of next year (presumably in the spring), the interest rate in Canada can be raised again to two percent. It is still difficult to talk about future prospects, especially since the members of the regulator also do not see a clear follow-up algorithm. Like the Fed, the Bank of Canada is trying to figure out at which is the neutral interest rate level, when monetary policy no longer holds back economic growth, but at the same time saving it from overheating.

The results of yesterday's meeting inspired bears of the USD/CAD pair and it sank to the middle of the 29th figure. True, by the end of the trading day, the situation somewhat leveled off, but the bearish mood of the looney still remained. The Canadian dollar failed to gain a foothold in the 29th figure, mainly due to the decline in the oil market. The cost of a barrel of Brent crude oil has already reached $76, putting pressure on commodity currencies.

"Black gold" is getting cheaper for many reasons. Firstly, it was recorded for the fifth week in one row In the case of assets and raw materials. There are more global reasons - in particular , Saudi Arabia yesterday confirmed its intention to increase oil production by 1-2 million barrels per day in order to "balance the market" in order to prevent fuel shortages.

Thus, yesterday was decisive for the pound and the Canadian. The British currency has not lost its chance for its recovery, while the Canadian dollar was able not only to gain a foothold in the 29th figure but also to sink to its base.