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GBP to CAD Exchange Rate Touches Weekly Low after Canada Boosts Financial Support

June 17, 2020 - Written by Toni Johnson

Despite mixed market risk-sentiment this week, the British Pound to Canadian Dollar (GBP/CAD) exchange rate has been pushed down to lows not seen in over a week. The Pound is being weighed by a variety of factors, while the Canadian Dollar is finding support in hopes for fiscal stimulus plans to prevent damage from a feared ‘second wave’ of coronavirus infections.

Last week saw limited movement in GBP/CAD as investors became less eager to take risks. GBP/CAD edged higher from 1.7010 to 1.7041 throughout the week.

This week so far, Sterling has been attempting to climb. Yesterday, GBP/CAD even neared last week’s high of 1.7174 - the pair’s best level in around three weeks. However, since last night GBP/CAD has been slumping back again. This morning, GBP/CAD is trending near a low of 1.6979 - the worst level for the pair in over a week.

GBP Exchange Rates Unappealing after Data Continues to Worsen Coronavirus Fears

Investors have had little reason to buy the Pound so far this week. As markets become more anxious about the possibility of a ‘second wave’ of coronavirus infections, the Pound has been too unappealing to benefit from any lingering risk-sentiment.

Concerns about how Britain is handling coronavirus and Brexit persist. This week’s UK data has thus far indicated that the coronavirus impact on Britain’s economy will continue to worsen.

Today saw the publication of some UK inflation data from May. The data largely met expectations, but analysts were still concerned about what it meant for the outlook.

According to James Smith, Develoepd Markets Economist at ING:

‘The other argument that is often made in favour of inflation returning, is that governments and central banks are pumping vast amounts of cash into the system. But this is unlikely to lead to higher prices, at least in the short/medium-term. In the case of the government, its spending has so far been solely aimed at keeping firms and consumers afloat, rather than trying to stimulate demand (which by definition, is constrained by the ongoing lockdown measures).

The bottom line is that inflationary pressures are likely to remain fairly muted for the time being. This, in turn, will keep the pressure on the Bank of England to maintain its current degree of stimulus, and we expect a further £150 billion of QE to be unveiled this week.’

Pound investors are also focusing on developments in Brexit negotiations. Speculation that talks could speed up soon have done little to offset uncertainty.

CAD Exchange Rates Find Support on Hopes for Fiscal Support to Combat Coronavirus

The risk and trade-correlated Canadian Dollar has seen fairly strong support this week so far, even though market risk-sentiment has been mixed.

A brief surge in demand for oil prices on production cuts and higher price forecasts boosted the oil-correlated Canadian Dollar earlier in the week.

Then, hopes for global fiscal measures to counter a potential second wave of coronavirus infections helped the Canadian Dollar to keep climbing today, even though oil prices fell back.

Canada’s government is reportedly ramping up financial support for Canadians who have lost income as a result of the pandemic lockdown. Canada Prime Minister Justin Trudeau said yesterday:

‘The reality is that even as we start to reopen, a lot of people still need this support to pay their bills while they look for work,

Over the next few weeks, our government will look at international best practices, and monitor the economy and the progression of the virus to see what changes - if any - need to be made to the program so that more people are supported,’

Still, while this and hopes of a major US fiscal stimulus package have helped the Canadian Dollar to remain resilient, the currency’s appeal has been limited by weak oil prices today.

GBP/CAD Exchange Rate Forecast: Bank of England (BoE) Policy Decision Ahead

The Pound outlook remains filled with uncertainties, but tomorrow’s news could drive some more solid direction in GBP/CAD.

The Bank of England (BoE) is set to hold its anticipated June policy decision tomorrow.

If the bank takes a more optimistic tone on Britain’s economic outlook, the Pound could see some stronger support over the coming week or so.

However, the bank is already expected to discuss ramping up its quantitative easing (QE) scheme. If the bank becomes even more dovish, or even hints that negative interest rates could even be on the table, the Pound could be in for further losses instead.

The prospect of negative rates would likely lead to market panic. It could combine with coronavirus and Brexit jitters to send the Pound plummeting.

Tomorrow’s Canadian wholesale sales data is unlikely to be hugely influential. Canadian Dollar movement will be driven mostly by shifts in market risk-sentiment and oil prices.

Overall, Bank of England, coronavirus and Brexit developments will be the focus for the Pound to Canadian Dollar exchange rate in the coming sessions.
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