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GBP/CAD Kept from Advancing as Trump’s Return Calms Markets

October 6, 2020 - Written by Toni Johnson

Global markets have been driven by developments regarding US President Donald Trump’s health since last week, and the British Pound to Canadian Dollar (GBP/CAD) exchange rate is under pressure today as the Canadian Dollar benefits from some fresh market demand for riskier trade and commodity-correlated assets. Meanwhile, the Pound’s movement has been comparatively limp, being driven more by rival movement as investors await bigger developments with Brexit and Britain’s coronavirus situation.

Last week saw the Pound benefit from market trade aversion, as the Canadian Dollar was knocked lower by falling oil prices. GBP/CAD opened last week at the level of 1.7053 and spent the week trending higher. Ultimately, GBP/CAD closed the week at the level of 1.7207 – over a cent and a half higher.

This week’s movement has been mixed so far, with the pair briefly dipping, then jumping this morning, before trending closer to the week’s opening levels again.

GBP Exchange Rates Lack Drive amid Concerns for UK Job Market Outlook

The Pound has seen mixed movement thus far this week. Investors are hesitant to make big moves on the British currency as the Brexit process has once again been thrust into yet another month of uncertainty.

The Pound did see some relief yesterday as Brexit negotiations were extended, but these gains have been limited.

Investors remain anxious about the possibility of a no-deal Brexit, and Britain’s economic outlook amid the coronavirus pandemic has also been concerning markets.

Fears are rising that many UK businesses will see huge layoffs as the UK government’s furlough scheme comes to an end.

UK Chancellor Rishi Sunak has been defending the government’s actions and plans to support economic activity and jobs amid the coronavirus pandemic today. However, some have said that the government’s new plans do not go far enough.

According to Rain Newton-Smith, Chief Economist at the Confederation of British Industry (CBI):

‘We may need to look at the way the scheme is designed over the coming weeks, particularly if the crisis escalates over the winter months, and we do think that for certain sectors... we may need to see additional support.’

Kate Nicholls, Chief Executive at UK Hospitality, said that there would be even more layoffs than previously expected. She said:

‘Ninety-one percent of our members said that the job support scheme ... wouldn’t be able to help them retain jobs because of the additional costs and restrictions that they were facing’

CAD Exchange Rates Push Ahead as Markets Return to Commodities

The Canadian Dollar is a currency correlated to market risk and trade sentiment. As a result, it took a hit from last week’s news that US President Donald Trump had contracted the coronavirus Covid19.

The news left investors hesitant to take risks, leaving the Canadian Dollar and oil prices weaker. Oil is Canada’s biggest export, so CAD is highly correlated to oil prices as well.

As a result of this though, a recovery in market sentiment since yesterday has helped the Canadian Dollar to recover today.

US President Donald Trump was discharged from hospital yesterday. It boosted hopes that he was recovering from the coronavirus illness, which in turn boosted US political stability hopes.

This made investors more willing to take risks. Commodities like oil prices rose, and so did the Canadian Dollar.

Hopes for US fiscal stimulus is also boosting the US Dollar. According to Jeffrey Halley, Senior Market Analyst at OANDA:

‘Oil prices raced higher overnight, as a combination of tailwinds combined to lift prices off the bottom of their one-month ranges,’

GBP/CAD Exchange Rate Forecast: Market Risk-Sentiment Remains the Focus

For now, GBP/CAD is trending lower as market sentiment recovers. However, will better market sentiment persist? The US political outlook remains dominated by uncertainties, so the Canadian Dollar could fall again.

For example, if US President Donald Trump’s health takes another turn for the worse, markets could panic. This could also weaken oil prices, which would only further weaken the Canadian Dollar’s appeal.

While risk-sentiment and oil prices will remain the primary focus for GBP/CAD in the coming sessions, there is some notable news in the coming days that could influence the Canadian Dollar as well.

Thursday will see Bank of Canada (BoC) Governor Tiff Macklem hold a speech. If there is a surprising stance on Canadian monetary policy this could have a big impact on the Canadian Dollar.

Friday’s data, including UK growth and trade stats, as well as Canada’s anticipated job market report, will also be closely watched by Pound to Canadian Dollar exchange rate investors.
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