GBP to CAD Exchange Rate Up as Sterling Rebound Benefits from Weak Oil

July 2, 2020 - Written by Tim Boyer

STORY LINK GBP to CAD Exchange Rate Up as Sterling Rebound Benefits from Weak Oil

Despite a lack of solid support for the Pound, the British Pound to Canadian Dollar (GBP/CAD) exchange rate has been recovering since yesterday. Sterling has been more easily able to advance against a weakening Canadian Dollar, as concerns persist over Canada’s coronavirus outlook and the currency is hit by weakness in prices of oil, Canada’s most lucrative commodity.

After opening this week at the level of 1.6893, GBP/CAD spent about half the week trending lower. GBP/CAD touched on a low of 1.6775 earlier in the week, which was just above last week’s quarterly worst level of 1.6772.

Yesterday though, the Pound experienced a rebound in demand. GBP/CAD jumped by over a cent, and continues to climb today. At the time of writing, GBP/CAD is trending in the region of 1.6992 after slipping from this morning’s fortnight high of 1.7024.

Investors have been adjusting positions on currencies as Q3 2020 commences, but the global coronavirus outlook continues to dominate headlines. Markets are also awaiting key data due for publication before the end of the week.

GBP Exchange Rate Rebound Limited by Britain’s Gloomy Coronavirus Outlook

In the middle of the week, investors piled back into the Pound. Sterling was bought back from its cheapest levels in profit taking, as the currency was perceived as undervalued.

Sterling continues to advance today amid speculation that there if there is any Brexit development, it could well be soon. According to Stephen Gallo, Head of FX Strategy at BMO:

‘The second to last week and the last week of July are going to be the extreme Brexit crunch point,

Advertisement

If there’s not movement by the week of 20th or the week of 27th, that may be the second wave of selling in Sterling,’

However, while these hopes boosted Sterling a little today, Sterling’s outlook remains marred in uncertainty overall amid coronavirus and Brexit jitters.

Today, the Bank of England (BoE) published its latest survey of businesses. The Decision Maker Panel (DMP) survey showed that businesses were less optimistic about the pandemic than a month ago. According to the BoE’s report:

‘In the June DMP survey, businesses expected their sales in 2020 Q2 to be 38% lower than they would otherwise have been because of Covid-19, employment to be 8% lower and investment to be 38% lower.

Sales were expected to recover only gradually over the next year with the negative impact from Covid-19 lessening from 38% in 2020 Q2 to 26% in Q3, 16% in Q4 and 10% in 2021 Q1.’

CAD Exchange Rates Strained by Weaker Oil Prices and Global Coronavirus Outlook

The Canadian Dollar has been weaker this week, which has made it easier for GBP/CAD to register some recovery.

Markets have been increasingly anxious over the global coronavirus outlook. As the number of new cases soar in some major economies, including the US, investors have been more hesitant to hold on to currencies correlated with risk.

As the Canadian Dollar is often correlated to risk, trade and commodity sentiment, it has been less appealing amid rising coronavirus ‘second wave’ fears.

Weaker prices of oil have also been weighing on CAD. Oil is Canada’s most lucrative export, and as a result the Canadian Dollar is often correlated to oil prices.

As coronavirus fears worsen and fears of a potential oil price ware flare up again, oil prices have been tumbling over the past week. This has kept pressure on CAD.

On top of this, while it beat expectations Canada’s April growth rate results were still disappointing to investors overall amid a shocking contraction in growth.

GBP/CAD Exchange Rate Forecast: UK Services Data May Not Influence Outlook

The Pound continues to climb against a weaker Canadian Dollar today, but the pair’s potential for gains is limited.

While the Pound could see stronger support if tomorrow’s key UK data impresses, the data could also hit the Pound lower.

Tomorrow’s European session will see the publication of Britain’s final June services and composite PMI reports.

If the data impresses it could help the Pound to hold its ground. On the other hand, weak data could worsen concerns about the coronavirus pandemic’s impact on Britain’s economy.

In fact, Sterling may not gain even if the data impresses. Concerns over how the coronavirus is impacting Britain continue to loom over the outlook.

Instead, the Pound is more likely to advance if the Canadian Dollar remains weak. If risk-sentiment weakens or oil prices continue to plunge, the Canadian Dollar will remain under pressure.

The Pound to Canadian Dollar exchange rate could instead tumble again if oil prices rebound or risk-sentiment improves.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Canadian Dollar Forecasts