June 10, 2020 - Written by Frank Davies
STORY LINK GBP to CAD Exchange Rate Testing Nearer Monthly Highs as Oil Prices Weigh on CAD
Despite a lack of drive in the Pound today, the British Pound to Canadian Dollar (GBP/CAD) exchange rate is continuing to edge higher. Global market uncertainty is weighing slightly on the Canadian Dollar, as investors await major developments regarding the Federal Reserve and developments in oil prices.
GBP/CAD has seen more limited movement in recent weeks, and last week the pair didn’t move far from the level of 1.7000 all week.
This week’s movement has been a little more bullish so far though. GBP/CAD has gained over a cent and currently trends near the level of 1.7127.
This puts it not far below today’s best level of 1.7137, which is the best level for GBP/CAD in almost a month since the 15th of May.
Looking ahead, Pound and Canadian Dollar investors will continue to react to developments regarding the coronavirus, as well potential economic recoveries from the pandemic.
GBP Exchange Rates Lacks Drive as Brexit Jitters Continue to Rise
While the Pound has benefitted from market risk-sentiment in recent weeks, the British currency has been struggling to keep capitalising on this mood.
This is because while other major economies show more signs of recovering from the coronavirus pandemic, Britain’s mixed recovery signs combined with returning Brexit fears are keeping investors anxious.
Britain’s coronavirus death toll continues to spook, and the British government’s exit strategies from quarantine have not been able to impress critics.
Some analysts are saying that the combination of coronavirus and Brexit on Britain’s economy could prove dire for the outlook.
With no notable developments in UK-EU Brexit negotiations and time running out for an extension to the Brexit transition period, Brexit fears only seem likely to worsen. According to Thu Lan Nguyen, Forex Analyst at Commerzbank:
‘Without such an agreement, trade would then be conducted according to WTO rules from next year onwards, which would be a bitter blow for both sides in real economic terms, but above all for the British economy, for which the EU is by far the largest trading partner,
For this reason we are forecasting a weaker Pound in the short term and only a very moderate recovery later in the year,’
CAD Exchange Rates Kept Under Pressure amid Oil Price Slide
Despite the lack of strength in the Pound, investors were hesitant to buy the Canadian Dollar either.
The Canadian Dollar found a little strength in US Dollar (USD) weakness ahead of this evening’s Federal Reserve news. However, ultimately, this demand was limited, with Fed uncertainty keeping CAD from moving too much either.
Meanwhile, the Canadian Dollar’s correlation to oil prices is pushing the currency a little lower.
Oil is Canada’s most lucrative commodity, so the recent volatility in oil has played a big part in CAD strength lately. According to Cailin Birch, global economist at The Economist Intelligence Unit:
‘The global economy is still in a precarious position. The dip in oil prices in recent days most likely reflects the end of the price boost that came from the initial economic re-opening.
The global economy is now settling in for a long, slow recovery process, which we only expect to pick up in late 2021, assuming a Covid-19 vaccine becomes available then.’
GBP/CAD Exchange Rate Forecast: Federal Reserve News and Oil Prices Could Influence CAD
Both the Pound and Canadian Dollar are lacking in drive this week, but that could change in the coming days depending on global developments.
Global markets are keeping a close eye on the Federal Reserve
, which holds its June policy decision this evening. If the Fed takes a more cautious tone on the US economic outlook amid the coronavirus crisis and mass protests, the US Dollar (USD) could weaken.
This may boost the Canadian Dollar more than the Pound.
On top of this, the Pound’s appeal is likely to remain limited due to Britain’s own mixed outlook.
Unless Britain’s coronavirus outlook improves, or there are some optimistic Brexit developments, investors may not see much reason to buy the Pound any time soon.
In fact, the Pound could weaken even further as these concerns rise, which would put fresh pressure on the Pound to Canadian Dollar exchange rate.
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