April 7, 2020 - Written by Tim Boyer
STORY LINK GBP to CAD Exchange Rate Appeal Limited as Boris Johnson Remains in Intensive Care
The Pound’s period of resilience has come to an end for now, as the British Pound to Canadian Dollar (GBP/CAD) exchange rate has fallen. The Canadian Dollar isn’t benefitting as strongly from market risk-sentiment as some other major currencies, but it has been enough to keep pressure on the pair. The Pound’s weakness on domestic political anxiety has also played a part in the pair’s weakness this week so far.
An impressive rebound in oil prices last week helped the Canadian Dollar to push back from its worst levels, and GBP/CAD ultimately was unable to sustain any gains last week. GBP/CAD ended last week fairly close to its opening levels.
This week though, the Pound’s weakness combined with market appetite for currencies more correlated to risk and trade has kept GBP/CAD trending lower.
At the time of writing, GBP/CAD is trending near the level of 1.7271. This is near today’s lows, the lowest levels for the pair in over a week.
GBP Exchange Rates Unappealing as UK Prime Minister Remains in Hospital
UK Prime Minister Boris Johnson was recently confirmed as contracting the coronavirus Covid-19. This week, Mr Johnson’s condition has appeared to take a turn for the worse.
On Sunday, Mr Johnson was admitted to hospital for worsening systems. This caused some jittery Pound movement during the European session yesterday.
However, last night reports emerged saying that Mr Johnson had been taken into intensive care.
The Pound was hit lower by the news, amid concerns over how his illness could impact government stability. Still, the Pound’s losses were fairly limited overall.
Due to the broad number of uncertainties associated with the possibility of Mr Johnson falling too ill, as well as doubt that government policy would change too much, investors instead opted to avoid moving too much on the British currency.
According to Analysts from ING:
‘UK Prime Minister Boris Johnson has entered the ICU after his Covid-19-related symptoms intensified. The negative impact on sterling has so far beeen relatively contained. As mentioned in our latest FX positioning note, GBP’s neutral speculative positions leave some space for markets to rebuild some shorts on the currency, as the UK has yet to see the peak of the Covid-19 contagion.’
CAD Exchange Rates Benefit from Market Risk-Sentiment and Oil Prices
Investors have been more willing to buy currencies correlated to risk and trade sentiment this week so far. This has helped the Canadian Dollar, often correlated to these factors, to hold some gains against the Pound this week so far.
Amid signs that the coronavirus pandemic’s spread is slowing due to global lockdown efforts, investors are buying assets considered a little riskier again.
On top of this, oil prices have been rebounding from their worst levels due to hopes for oil production cut negotiations in the coming weeks. As oil is Canada’s biggest export, this is supporting CAD as well.
According to Analysts at Credit Agricole, weeks of poor CAD performance might finally be behind it:
‘The CAD has regained some composure of late on the back of cautious consolidation of global oil prices and after the BoC cut rate by 50bp and launched QE earlier last week…In addition, in the wake of the BoC’s easing measures, the rates markets seem to assume that the MPC has hit its effective lower bound in rates. In turn, we think that at least some of the cyclical headwinds for the CAD could start abating from here,’
GBP/CAD Exchange Rate Forecast: Coronavirus Developments to Closely Watch
Developments regarding the coronavirus pandemic will continue to be the primary cause of Pound to Canadian Dollar exchange rate movement over the coming sessions.
Overall market sentiment will have perhaps the biggest effect. If the spread appears to be slowing in major economies, investors will become even more willing to buy risk-correlated currencies like CAD.
On the other hand though, if there is another sharp uptick in infections that surprises markets, investors will look to safe haven currencies instead. This could lead to fresh CAD weakness.
As for the Pound, the British currency will find stronger support if UK Prime Minister Boris Johnson recovers smoothly. More volatility may be ahead if Mr Johnson remains in intensive care.
Of course, prices of oil are still likely to drive the Pound to Canadian Dollar exchange rate as well.
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TAGS: Pound Canadian Dollar Forecasts