Pound Canadian Dollar Exchange Rate Soars as Sunak Looks Likely to become PM

October 24, 2022 - Written by John Cameron

STORY LINK Pound Canadian Dollar Exchange Rate Soars as Sunak Looks Likely to become PM

Pound Canadian Dollar Soars as Markets React to UK Race for Prime Minister

The Pound (GBP) strengthened dramatically against the Canadian Dollar (CAD) on Monday, as markets reacted to the UK’s race for Prime Minister.

This saw the GBP/CAD exchange rate trade at around CA$1.5540, a sharp increase of around 0.8% from Monday’s opening rates.

Pound (GBP) Rallies as Sunak Becomes Favourite

Monday saw the Pound (GBP) strengthen across the board as nominations for the Conservative Party leadership drew to a close.

With Sunak the favourite to become the next Prime Minister, having gained the backing of around 165 MPs, GBP investors were hopeful. Sunak’s figure far exceeds the 100 minimum needed to run, and eclipsed the number of backers his rival Penny Mordaunt held, who managed to scrape around 30.

This followed from Boris Johnson’s exit from the race on Sunday, which has soothed GBP investors. Analysts feared that Johnson would inject fresh volatility into the Pound, compared against both Mordaunt and Sunak.

His exit from the race saw GBP and bond yields rally, as was explained by Sussanah Streeter, the senior investment and markets analyst at Hargreaves Lansdown. She stated: ‘[Johnson} had threatened to cause fresh political instability, given that it’s less than two months since he left the job, so his retreat from the race brought a sigh of relief for sterling and an even bigger sigh of relief on the bond markets.’

However, GBP’s gains may have been capped by Monday’s flash PMIs for October. Manufacturing and service sectors demonstrated a contraction, with services falling from 50 to 47.5, and manufacturing falling from 48.4 to 45.8.

Despite positivity around the next Prime Minister, the UK economy has continued to be on the backfoot due to these contractions.

Canadian Dollar (CAD) Weakens as Oil Prices Slump

The Canadian Dollar (CAD) weakened significantly this morning, as oil prices began to slide.

CAD investors elected to remain cautious as increasing fears of a global recession began to dampen demand for fuel. As demand showed signs of falling, oil prices fell in kind, with crude oil prices having fallen by 1.4% at the time of writing.

This was further compounded by the release of 15 billion barrels from the US’ strategic oil reserves, which aimed to prevent oil prices from rising too substantially.

With this plan appearing to work as intended, the oil-linked ‘Loonie’ weakened during Monday’s session.

Further weakening CAD was the US Dollar (USD) strengthening on Monday. Due to the trading links shared between the two countries, a rally for USD usually brings weakness in CAD. With the global economic outlook seeming bleak, the safe-haven USD proved popular, weakening CAD.

Pound Canadian Dollar Exchange Rate Forecast: GBP to Strengthen amid Political Change?

Looking ahead, the Pound Canadian Dollar (GBP/CAD) forecast could continue to rally as the new Prime Minister is announced.

With Sunak expected to take the position, investors are anticipating a further return to fiscal orthodoxy that was outlined by Chancellor Jeremy Hunt. Because of this, GBP may continue to rally further into the week. However, should an upset occur such as Mordaunt remaining in the race with firm backing, GBP could be affected by renewed volatility.

For Canada, the core catalyst of movement this week may be Wednesday’s interest rate decision from the Bank of Canada (BoC). With a 75bps rise expected, investors may support the ‘Loonie’ as greater returns are promised.

However, if the BoC raises rates below forecast, CAD may trade narrowly due to a lack of support.

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TAGS: Pound Canadian Dollar Forecasts