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Pound to Canadian Dollar (GBP/CAD) Exchange Rate Edges Higher as US-China Trade Tensions Weigh on ‘Loonie’

July 24, 2020 - Written by John Cameron

GBP/CAD Exchange Rate Rises as Dampened Risk Sentiment Drags Down Canadian Dollar

The Pound to Canadian Dollar (GBP/CAD) exchange rate rose by 0.4% today, with the pairing currently trading around CA$1.71.

The Canadian Dollar (CAD) suffered today as US-China trade tensions are weighing on risk-sentiment and limiting the appeal of the risk-sensitive ‘Loonie’.

Everbright Sun Hung Kai analysts commented:

‘Given elections loom in the US in November, it is extremely unlikely that the relationship will return to a positive path before then.’

‘Certainly the rhetoric will be heated and further disputes are likely to flare up. Both Democrats and Republicans are playing up their credentials as being tough on China.’

Fiona Cincotta, a market analyst at currency broker City Index, also cited concerns for the US economy as dragging down the risk-sensitive currencies, saying:

‘Concerns over the economic recovery in the US are weighing on risk sentiment.’

Canadian Dollar (CAD) investors are also becoming increasingly concerned that a weakening US economy and global trade tensions could clip oil prices.

As a result, CAD is underperforming as fears grow that oil – Canada’s largest export – could face reduced demand, thus undermining the Canadian economy.

Pound (GBP) Rises as UK Services PMI Beats Forecasts in July

The Pound (GBP) rose today after the UK’s Markit Services PMI for July beat forecasts and emerged out of contraction territory at a stronger-than-expected 56.6. Consequently, hopes for the UK’s economic recovery from the Covid-19 crisis have improved.

Chris Williamson, chief business economist at PMI, commented on the report:

‘Even with the July rebound, there’s a long way to go before the output lost to the pandemic is regained and, while businesses grew more optimistic about the year ahead, a V-shaped recovery is by no means assured.’

Today also saw UK retail sales for June beat forecasts, with the month-on-month figure rising from 12.3% to 13.9%. As a result, GBP investors are more optimistic that the UK’s retail sector could be on the road to recovery.

Jonathan Athow, ONS deputy national statistician, said:

‘Food shops continue to do quite well, as we're eating at home more.’

‘But the real growth has been in online sales. Online sales continue to go from strength to strength.’

GBP/CAD Outlook: Could Intensifying US-China Trade Tensions Drag Down the ‘Loonie’?

Pound (GBP) investors will be looking ahead to Tuesday’s release of the latest CBI Distributive Trades Survey for July. Any signs that this could remain in the doldrums would prove GBP-negative.

The Canadian Dollar (CAD) will remain sensitive to global risk sentiment next week. If US-China trade tensions worsen, then we could see the ‘Loonie’ continue to sink.

The GBP/CAD exchange rate will also be influenced by UK-EU post-Brexit negotiations. Any signs of a compromise on a possible trade deal would buoy Sterling.

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