December 1, 2020 - Written by John Cameron
STORY LINK GBP to CAD Exchange Rate Jittery as Market Sentiment and Growth Hopes Underpin CAD Resilience
While the Pound attempts recovery against many major currencies today, the British Pound to Canadian Dollar (GBP/CAD) exchange rate has been unable to sustain much in the way of gains since markets opened this week. This is because resilient demand for risk and trade-correlated currencies like the Canadian Dollar are keeping the pair’s appeal limited, and the threat of a no-deal Brexit still persists as well.
Strength in both the Pound and Canadian Dollar have left GBP/CAD jittery in recent weeks. Last week saw GBP/CAD open at the level of 1.7375 and fluctuate throughout the week, before seeing a drop on Friday and ultimately closing the week nearer the level of 1.7302 - over half a cent lower.
This week so far, GBP/CAD has been attempting to rebound and recover some of last week’s losses. However, as of the time of writing on Tuesday, GBP/CAD is struggling to sustain any of these advance attempts. The pair is currently trending near the week’s opening levels again.
GBP Exchange Rates Struggle to Recover despite Brexit Hopes and UK Data
The Pound was knocked at the end of last week, as no-deal Brexit fears returned on mixed developments in UK-EU negotiations.
More optimistic comments over the weekend from officials made markets a little more optimistic again as well. However, this has not been enough to help the Pound to make a more sustained recovery against the resilient Canadian Dollar.
Even today’s UK manufacturing PMI results, which beat forecasts and showed that Britain’s economic activity has been more resilient than expected amid the coronavirus pandemic, was not enough to help the Pound to sustain a bigger recovery.
No-deal Brexit concerns continue to linger after all, as there is just a month left until the end of the UK-EU Brexit transition period.
On top of that, the Pound is being weighed by concerns over Britain’s retail sector.
UK retail chain Debenhams is expected to wind down operations following recent financial struggles and the coronavirus pandemic. It is expected to lead to significant job losses.
Frances O’Grady, General Secretary at TUC, called on the government to do more for struggling retail businesses:
‘The government must not watch from the side lines as thousands of high street jobs are lost.
We need urgent and targeted action to save livelihoods in badly-hit industries - like retail- before it’s too late.
Unions stand ready to work with ministers and employers on sector-by-sector recovery plans.’
CAD Exchange Rates Continue to Find Support on Market Sentiment and Outlooks
The Canadian Dollar remains appealing today. In fact, much of the reason for the Pound to Canadian Dollar exchange rate’s struggle to advance is due to lasting demand for the Canadian Dollar.
This is largely due to overall market appetite for assets correlated with risk. As hopes over coronavirus vaccines rise and markets bet on economy recovery in 2021, investors are more willing to take risks again.
Rather than any particular Canadian news or data, this risk-on movement is the primary cause of the Canadian Dollar’s continued strength in recent sessions.
According to Alvise Marino, Foreign Exchange Strategist at Credit Suisse, weakness in the US Dollar (USD) is also a key factor. The US Dollar is often a rival to the Canadian Dollar.
‘It is not really a Canada-related story,
It is primarily about the ongoing bid for risky assets, which realizes in FX in the form of USD weakness.’
Resilient market demand for risks is keeping the Canadian Dollar appealing, even as prices of oil slips back and Canadian data disappoints.
Prices of oil, Canada’s biggest export, have been sliding today as the latest OPEC+ meetings of oil producers have seen disagreements.
Canada’s Q3 growth rate report, published today, was not as strong as expected either.
GBP/CAD Exchange Rate Forecast: Brexit Negotiations Could Push Pair Higher
The Pound to Canadian Dollar exchange rate is likely to keep being driven by current factors in the coming sessions.
UK-EU Brexit negotiations and PMI reports will be the focus of Pound investors, while upcoming key Canadian stats and shifts in market sentiment are more likely to drive the Canadian Dollar.
Canadian labour productivity data is due tomorrow, with Britain’s key services and composite PMI results due Thursday.
Friday will round off the week with highly influential Canadian ecostats including trade and unemployment figures.
If there are optimistic developments in UK-EU Brexit negotiations though, this could overshadow data and make it much easier for GBP/CAD to sustain a solid recovery.
The Pound to Canadian Dollar exchange rate is also more likely to recover if market sentiment weakens, denting demand for the relatively risky Canadian Dollar.
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TAGS: Pound Canadian Dollar Forecasts