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Pound Canadian Dollar (GBP/CAD) Exchange Rate Slumps as UK Looks Set for Fresh National Lockdown

January 4, 2021 - Written by Frank Davies

Prospect of Fresh UK Lockdown Drives Pound Canadian Dollar Exchange Rate Lower

The Pound to Canadian Dollar (GBP/CAD) exchange rate dropped sharply on Monday in the wake of the announcement of Scotland’s imminent return to a state of national lockdown.

Speculation that the rest of the UK could soon follow suit left the Pound generally lacking in appeal during the first trading session of 2021.

With the UK economy already under significant pressure thanks to the ongoing Covid-19 crisis the prospect of another lockdown further dented confidence in the domestic outlook.

As the impact of the eleventh hour UK-EU trade deal also faded this left GBP exchange rates vulnerable to a fresh bout of selling pressure, given doubts over the underlying strength of the UK economy.

Growing Fears of Sustained UK Growth Slowdown Weigh on GBP/CAD Exchange Rate

If the entire UK goes back into a state of lockdown the odds of a first quarter economic recovery look set to diminish.

Although the manufacturing sector demonstrated resilience in December, holding onto positive growth momentum, another period of even tighter social restrictions could easily dampen growth.

The release of the corresponding finalised UK services PMI may give the Pound another dent as long as it confirms another month of contraction.

As long as the services PMI remains below the neutral baseline of 50 the sector looks set to remain a drag on the gross domestic product.

With the service sector still accounting for the majority of the UK GDP any sustained weakness here would further increase the risk of growth falling back into negative territory.

If the UK experiences a double-dip recession support for the Pound could weaken further, leaving the GBP/CAD exchange rate exposed to additional downside bias.

Expected Delay of OPEC+ Production Increase Fails to Boost Canadian Dollar

While the Canadian Dollar struggled to find support ahead of the Organisation of the Petroleum Exporting Countries (OPEC) meeting this failed to shore up the GBP/CAD exchange rate.

With the bloc expected to delay any rise in its production capacity in the near term, thanks to the deterioration in global demand prompted by Covid-19, oil prices saw little growth.

The mood towards the commodity-correlated Canadian Dollar could sour on Tuesday, though, if November’s finalised Canadian producer price index confirms a decline.

Fresh signs pointing towards a lack of inflationary pressure could see CAD exchange rates trending lower across the board, especially if the wider sense of market risk appetite also continues to weaken.
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