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GBP to CAD Exchange Rate Holds Ground despite Revives Brexit Fear

June 5, 2020 - Written by Toni Johnson

Despite stronger demand for risk-correlated currencies and some strong Canadian data at the end of the week, the British Pound to Canadian Dollar (GBP/CAD) exchange rate has ended the week on a fairly resilient note. Investors are buying the Pound despite Britain’s gloomy economic outlook and returning Brexit fears. However, looking ahead there is much uncertainty in the outlooks for both currencies as the coronavirus pandemic continues to develop.

Since opening this week at the level of 1.7000, GBP/CAD has been fluctuating within the region of just over a cent. It has been trending between lows of 1.6881 and highs of 1.7070. It has been the steadiest week for the pair in some time, and has been due to mixed demand for both currencies.

At the time of writing on Friday, GBP/CAD is trending just above the week’s opening levels. The Pound’s resilience is helping it to avoid losses, despite Brexit fears returning.

GBP Exchange Rates Resilient despite Lack of Brexit Progress

Despite a lack of optimistic news for the Britain’s economy or the Pound this week, the Pound has seen surprisingly resilient performance overall.

Sterling continued to hold its ground on Friday afternoon before markets closed for the week. This was due to a few noteworthy factors slightly distracting from the overall gloomy outlook.

For example, while there has been no notable progress in UK-EU Brexit negotiations in recent months, hopes for the UK to somehow scrape by and achieve a more optimistic Brexit outcome are keeping investors from becoming too gloomy.

According to Kit Juckes, Analyst at Societe Generale:

‘I think the market thinks there’s still a better than 50% chance that we’ll muddle through again.’

On top of this, the latest round of Brexit talks concluded with what was perceived as a lack of the usual vitriol towards divisions. This has also boosted hopes for relations to improve.

According to Britain’s Chief Negotiator, David Frost:

‘Progress remains limited but our talks have been positive in tone,

Negotiations will continue and we remain committed to a successful outcome.’

While Sterling also benefitted from weakness in the US Dollar (USD), the US currency strengthened before markets closed which limited Pound appeal.

CAD Exchange Rates Benefitting from Risk-On and Oil Price Rebound

While the Pound saw a late-week boost in demand, investor appetite for the Canadian Dollar also improved before markets closed for the week due to a number of factors.

The Canadian Dollar has seen mixed demand lately due to volatility in oil prices, as well as market hesitance to buy currencies correlated with risk or trade.

However, today has seen a rise in risk-on movement. This has only been further bolstered by a rebound in oil prices seen in recent sessions.

Oil prices have been gaining again since OPEC+ appeared ready to extend its planned production cuts. As oil is Canada’s biggest export, the news supported the oil-correlated Canadian Dollar.

On top of further oil price recovery though, the Canadian Dollar was also bolstered by a stronger than expected Canadian job market report, published today.

With the coronavirus pandemic gathering pace in May, many analysts expected Canada’s unemployment rate to worsen much further last month. Forecasters predicted the unemployment rate would jump from 13% to 15%, but instead it only rose to 13.7%.

Perhaps even more relieving was the reported rise in new jobs. Around 500k jobs were expected to be lost in May, but instead over 289k jobs were made. These figures and the slightly stronger risk-on movement kept the Canadian Dollar buoyed before markets closed.

GBP/CAD Exchange Rate Forecast: Brexit and Oil Prices Remain the Focus

As June goes on, investors are likely to become increasingly anxious about the state of the Brexit process. With no progress in UK-EU negotiations, markets will be focused on whether or not there are any signs that the transition period can still be delayed.

If the transition period is not extended before the end of June, it is expected that it will end at the end of 2020 regardless of whether or not a post-Brexit deal has been reached. Amid the glacial pace of negotiations, fears of a cliff-edge conclusion to the Brexit process persist.

Essentially, the Pound’s appeal will depend more and more on Brexit developments as the month continues. Brexit jitters may even take focus over next Friday’s key UK data, which includes trade and growth stats from April – the first full month of coronavirus quarantine.

As for the Canadian Dollar, next week’s Canadian economic calendar will be relatively quiet. Canadian Dollar investors will be focused on strength in rival currencies, risk-sentiment, and especially oil prices.

There is speculation that the oil price rebound may not last much longer. If oil prices do indeed fall again, this would make it easier for the Pound to Canadian Dollar exchange rate to advance.
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