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GBP/CAD Outlook: Pound to Canadian Dollar Exchange Rate Struggles to Sustain Gains

January 21, 2021 - Written by James Fuller

Foreign exchange market appetite for the Pound has been improving today, but the British Pound to Canadian Dollar (GBP/CAD) exchange rate has been unable to sustain much in the way of fresh gains. This is because the latest developments in politics and global sentiment have been seen as widely optimistic, and are making investors confident enough to take currencies more correlated with risk and trade.

After opening this week at the level of 1.7300, GBP/CAD spent the first half of the week attempting to advance as the Pound benefitted from dampened market sentiment.

However, after touching a weekly high yesterday, market optimism around the inauguration of new US President Joe Biden sent GBP/CAD tumbling again.

GBP/CAD hit a weekly low of 1.7212 yesterday. Since then, GBP/CAD has been attempting to recover. However, gains have been limited due to fresh resilience in the Canadian Dollar, and at the time of writing on Thursday GBP/CAD is trending in the region of 1.7305 again – just around the week’s opening levels.

Pound Sterling (GBP) Exchange Rates Continue to Attempt Gains as Britain’s Outlook Improves

Investors are becoming more optimistic about Britain’s economic prospects this week. This is the primary cause of the Pound’s advance attempts.

The Pound has been rallying against major rivals like the Euro (EUR) and US Dollar (USD), due to stronger than expected UK stats and hopes for Britain’s economy to recover from the coronavirus pandemic.

More signs that the UK government is ramping up its coronavirus vaccination program is making investors more optimistic about Britain’s vaccine outlook than some other major economies as well.

According to Mikael Milhoj, Senior Analyst at Danske Bank, Britain’s more advanced coronavirus vaccine progress is helping the Pound to strengthen:

‘If you look at the current status of the vaccination process, the UK is leading here in Europe and it's also still vaccinating at a faster pace than in most of the big EU countries,

Also, you can see that the support for getting vaccinated in the UK is much higher than in Germany, Italy, Spain and especially of course in France. And that means that the UK economy may exit this COVID-19 crisis before the rest of Europe does and that I believe should have a positive impact on Sterling.’

For now, markets are optimistic that other upcoming UK data will beat expectations as well. However, the Pound has been unable to sustain gains against other strengthening currencies like the Canadian Dollar.

Canadian Dollar (CAD) Exchange Rates Benefit from Improving Market Sentiment

Earlier in the week, demand for the risk and trade-correlated Canadian Dollar was mixed. Investors were hesitant to take risks on the currency due to concerns about longer term oil demand, as well as general political uncertainty.

Much of the political uncertainty revolved around concerns that there could be civil unrest or a complication in the inauguration of new US President Joe Biden.

However, the inauguration process yesterday went smoothly, with no notable unrest. Biden quickly went to work and markets have only become more confident that his administration could soon deliver a massive fiscal spending bill.

Markets became more confidence as US political uncertainty softened. On top of this, economic recovery hopes are gradually rising overall. This is helping CAD.

According to Ronald Simpson, Managing Director of Global Currency Analysis at Action Economics:

‘Relatively firm oil prices, along with a risk-on backdrop, this morning supported the CAD,’

The Bank of Canada (BoC) avoided a notable dovish shift at its January policy decision this week as well.

GBP/CAD Exchange Rate Forecast: Retail Sales Could Cause Late-Week Shift

The Pound to Canadian Dollar exchange rate continues to trend near the week’s opening levels, as both currencies attempt to benefit from the week’s developments.

Unless tomorrow’s data or global developments cause a shift in sentiment, investors may not have much reason to move much on GBP/CAD.

Friday’s session will see the publication of UK and Canadian retail sales results. These will give investors a better idea of how these economies are weathering the coronavirus pandemic.

Stronger UK data, including tomorrow’s UK PMIs as well, could boost hopes that Britain’s economy will recover from the pandemic. This could help Sterling to extend its current rally attempts.

Weaker UK data and strong Canadian data could worsen UK coronavirus fears though, and could cause GBP/CAD to give up some ground.

Of course, the risk and trade-correlated Canadian Dollar will continue to be influenced by shifts in oil prices and global market sentiment as well.

Overall, the Pound to Canadian Dollar exchange rate is unlikely to see much major movement if market sentiment remains the way it is.
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