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GBP to CAD Exchange Rate Plummet May Be Limited as Covid19 Fears Hit Oil Prices

December 21, 2020 - Written by Ben Hughes

Investors are selling the British Pound to Canadian Dollar (GBP/CAD) exchange rate today, as the Pound is throttled by reports that a new more contagious variation of the coronavirus Covid19 has been found in Britain. The Canadian Dollar has been unable to capitalise on the Pound’s weakness though, as rising coronavirus fears are weighing on the Canadian currency, as well as causing prices of commodities to fall.

GBP/CAD opened this week at the level of 1.7287 - not far below last week’s fortnight high of 1.7334. However, since opening, GBP/CAD has tumbled and has already lost over a cent. At the time of writing, GBP/CAD trends in the region of 1.7124.

Still, despite today’s losses GBP/CAD is still trending well above last week’s opening levels of 1.6901. GBP/CAD gained on Brexit hopes last week, and the rise of safe haven demand this week so far has limited the Canadian Dollar’s appeal.

GBP Exchange Rates Plunge as More Contagious Coronavirus Reported in UK

Over the weekend, a new more infectious strain of the coronavirus Covid19 was reported in South-East England.

In response to the allegedly more infectious strain, the UK government announced stricter measures in many S-E England regions, including London.

Britain’s coronavirus situation remains concerning overall, with infections still rising across the nation. It has led to speculation that Britain’s economy could be in for months more restrictions and lockdown, even as vaccine efforts begin to roll out.

Britain’s economy is expected to keep being hit hard by the pandemic as well. UK retail is reportedly performing more strongly this month, but January is currently expected to start 2021 off with a weak note.

According to Ben Jones, Principal Economist at the Confederation of British Industry (CBI):

‘The new year looks set for an unpromising start, with retailers anticipating a sharp fall in sales in January. An expected deterioration in the labour market will likely weigh on household spending, even assuming the roll-out of Covid-19 vaccines paves the way for a gradual lifting of restrictions as the year progresses.

Government support measures, such as business rates relief and the extended furlough scheme, have been immensely helpful for retailers. To assist with planning, a priority now should be to avoid any sudden cliff-edges as schemes are wound down.’

CAD Exchange Rate Gains Limited by Tumbling Oil Prices and Coronavirus Jitters

The Canadian Dollar is a currency often correlated to market risk and trade-sentiment.

It has seen a strong period amid the market’s hopes for coronavirus vaccines and economic recovery. However, this means it is less appealing as the market’s coronavirus fears intensify again.

In particular, the Canadian Dollar remains highly correlated to prices of oil, Canada’s biggest export.

Oil prices fell from their best levels in response to the news of the more contagious coronavirus strain. According to John Hardy, Head of FX Strategy at Saxo Bank:

‘These developments being another sign that the market may have to go through a prolonged period before the vaccine rollout eventually supports a recovery in fuel demand and the price of oil,’

The Canadian Dollar struggled to hold its ground due to this and recovery in safe haven rivals like the US Dollar (USD).

Today’s Canadian new housing prices and wholesale sales stats were decent, but not enough to notably boost CAD demand.

GBP/CAD Exchange Rate Forecast: Coronavirus Developments Likely to Dominate Markets

This new coronavirus strain reported in Britain is currently gripping headlines around the world. For now, analysts predict that current vaccines will be effective against this new strain.

However, the reality is that a faster spreading variant could pose a bigger threat to safety in major economies, and could lead to even longer periods of restriction and lockdown than previously expected.

For now, markets will be closely watching for developments on the coronavirus pandemic. For example, if the pandemic worsens across Britain or other parts of Europe, fears of restrictions could worsen.

This may make markets even more eager to hold onto safer currencies. This would also weigh heavily on oil prices and the Canadian Dollar, which may actually limit Pound losses even if Britain’s economy continues to be hit by the pandemic.

Tomorrow’s UK growth rate and Canadian wage earnings stats are likely to be overshadowed by coronavirus and Brexit developments for the Pound to Canadian Dollar exchange rate.
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