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Pound Canadian Dollar (GBP/CAD) Exchange Rate Slumps on BoE Negative Rate Speculation

May 27, 2020 - Written by John Cameron

Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Falls as Markets Expect BoE to Take Rates Below Zero

The Pound Sterling Canadian Dollar (GBP/CAD) exchange rate slumped by around -0.8% on Wednesday afternoon, this left the pairing trading at around CA$1.6868.

The Pound slumped today as investors began to fret over the possibility of the Bank of England (BoE) sending interest rates into negative territory.

The focus shifted back to the possibility of the Bank of England (BoE) taking interest rates into negative territory, which weighed on Sterling sentiment.

On Tuesday, the BoE’s Chief Economist Andy Haldane played down expectations the bank would take rates below zero.

Speaking yesterday, he emphasised that ‘reviewing and doing are different things’.

However, this did little to stop GBP from falling as analysts believe that once talk about negative rates has taken hold in markets it will be hard to shift investor attention away from it.

Commenting on this, MUFG’s head of research, Derek Halpenny said:

‘The door has been opened to the prospect of negative rates given the BoE clearly before has explicitly ruled out negative rates.

‘We do not see Haldane’s comments yesterday as a signal of a reversal of the negative rate speculation.’

Canadian Dollar (CAD) Rises despite Oil Prices Sliding on US-China Tensions

Meanwhile, the oil-sensitive ‘Loonie’ was able to edge higher despite oil prices slumping on Wednesday as tensions between the United States and China heating up.

Prices slumped after US President Donald Trump said he was working on a strong response to China’s proposed security law in Hong Kong.

If relations continue to deteriorate it could see pressure on global businesses increase and weigh on oil demand which has already been weakened by the coronavirus pandemic.

Commenting on this, Stephen Brennock of oil broker PVM noted:

‘As much as oil fundamentals are improving, there are still several flies in the bullish ointment. They include the latest uptick in U.S.-China tensions.

‘The threat of a fresh U.S.-China trade war is no longer just a tail risk and could spell disaster for risk assets.’

Meanwhile, crude prices fell due to disappointing forecasts over the economic impact of the pandemic.

Investors are also looking closely at the next OPEC+ meeting in less than two weeks’ time to see whether the group will continue to cut production as demand starts to recover after lockdown measures are being eased around the world.

According to Rystad Energy’s head of oil markets, Bjornar Tonhaugen:

‘Stock builds are falling and the market will be balanced in June, so who wants to willingly forego millions of crude barrels in sales if he’s able to sell it in a recovering market.’

Pound Canadian Dollar Outlook: Canadian GDP in Focus

Looking ahead, the Canadian Dollar (CAD) could give up some of today’s gains against the Pound (GBP) if oil prices continue to fall.

CAD is likely to slump if oil prices continue to fall as tensions between the United States and China heats up.

Meanwhile, the ‘Loonie’ could suffer further losses on Friday following the release of Canada’s Q1 GDP data.

If growth contracts more than expected in the first three months of 2020 due to the coronavirus pandemic, the Pound Canadian Dollar (GBP/CAD) exchange rate will edge higher.

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