GBP to CAD Exchange Rate Gains Limited as Sterling Rally Could Run Out of Steam

February 1, 2021 - Written by Tim Boyer

STORY LINK GBP to CAD Exchange Rate Gains Limited as Sterling Rally Could Run Out of Steam

Optimism over Britain’s coronavirus vaccine outlook has helped the British Pound to Canadian Dollar (GBP/CAD) exchange rate to advance lately. While the pair was unable to hold last week’s best levels, it is once again edging higher this morning as investors continue to find the Pound appealing. However, the Pound may run out of steam soon unless there is an upside surprise in Britain’s outlook.

It’s been a busy couple of weeks for GBP/CAD, as the pair touched on impressive highs last week. GBP/CAD opened last week at the level of 1.7430 and spent the second half of the week surging higher.

Towards the end of the week, GBP/CAD touched on an impressive high of 1.7639 - the best level for the pair since April 2020. After that high though, GBP/CAD tumbled and closed the week at the level of 1.7515.

Since markets opened this morning, GBP/CAD has been climbing higher again. At the time of writing, GBP/CAD is trending in the region of 1.7560.

GBP Exchange Rates Remain Appealing on UK’s Coronavirus Vaccine Outlook

In recent weeks, the Pound has become one of the most appealing major currencies, due largely to market speculation over development on coronavirus vaccines.

Britain’s coronavirus vaccine schemes continue to pick up the pace. Britain’s vaccination programmes are ahead of those of many other major economies, which has been a big reason for the Pound’s recent strength.

As Britain’s infection rate continues to gradually slow, and more and more groups of people are offered vaccinations, the Pound continues to climb.

Sterling found a little extra boost this morning as well, in the form of Britain’s final January manufacturing PMI from Markit.

The manufacturing PMI beat projections, coming in at 54.1 rather than the expected 52.9. It showed unexpected manufacturing resilience despite Britain’s third national lockdown beginning last month.

However, analysts continue to warn that the lockdown could have a big impact on Britain’s early-2021 economic activity.

According to Lee Hardman, Currency Analyst at MUFG, UK growth and the Bank of England’s (BoE) tone on monetary policy are being closely watched:

‘However, the tougher third lockdown is expected to deliver a larger negative hit to growth at the start of this year,

The most bullish potential outcome for the Pound would be if the BoE leaves the key policy rate unchanged, and the consultation with lenders further dampens speculation over negative rates in the near term,’

CAD Exchange Rates Avoid big Losses amid Strong Oil Prices

The Canadian Dollar is a currency often correlated to market risk and trade sentiment. In particular, the Canadian Dollar is often driven by movement in prices of oil, Canada’s biggest export.

Prices of oil continue to see strong performance in recent weeks. This is due largely to global market hopes that the global economy will recover from the coronavirus pandemic and demand for oil will improve as a result.

Despite concerns that the pandemic is lasting much longer than previously hoped, oil prices remain fairly strong overall.

With oil prices strong and last week’s Canadian data impressive as well, Canada’s economic outlook is fairly resilient. This is helping the Canadian Dollar to avoid bigger losses against the Pound today, even as investors continue trying to buy the Pound on coronavirus vaccine hopes.

Demand for the Canadian Dollar was weighed a little this afternoon by Canada’s January manufacturing PMI however.

The manufacturing report was expected to remain high at around 57, but it instead slowed to 54.4. It indicated that Canada’s manufacturing sector may not be weathering the coronavirus pandemic as much as hoped.

GBP/CAD Exchange Rate Forecast: Sterling’s Rally Could Run Out of Steam

Investors are still buying the Pound on hopes for Britain’s coronavirus vaccine outlook, but there have been no upside surprises in Britain’s coronavirus situation for some time.

While optimism around Britain’s vaccination programmes will likely remain, markets may run out of reasons to keep buying the Pound higher unless there are more upside surprises in the coming sessions.

Aside from potential coronavirus developments, markets are now looking ahead to Wednesday, when Britain’s final January services and composite PMIs will be published.

As services make up a major chunk of Britain’s economic activity, any surprises in services data could cause a shift in Pound movement. The Pound’s current rally could be extended if the nation’s services sector is weathering the coronavirus pandemic more than expected.

As for the Canadian Dollar, it will continue to be driven by domestic coronavirus developments and oil price movements in the coming sessions.

This week’s Canadian economic calendar will be fairly quiet until Friday, when Canadian job market data could influence the Pound to Canadian Dollar (GBP/CAD) exchange rate.

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