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GBP to CAD Exchange Rate Falls Back from Highs but Outlook Remains Strong

February 19, 2021 - Written by John Cameron

Investors sold the British Pound to Canadian Dollar (GBP/CAD) exchange rate slightly from its best levels today. Markets digested some unexpected signs of weakness in Britain’s latest data, and the Canadian Dollar has been benefitting from weakness in rival currencies. Despite this though, expectations for Britain to begin looking to lockdown being eased are keeping the Pound appealing overall, so there may be more gains ahead for the pair going forward.

Since opening this week at the level of 1.7582, GBP/CAD has been trending with an upside bias.

Overnight, GBP/CAD touched on a high of 1.7743, which was the best level for the pair in 11 months since March 2020.

This morning has seen GBP/CAD tumbling back from its best levels. At the time of writing, GBP/CAD is trending at around the level of 1.7697 - which still leaves it over a cent above the week’s opening levels.

GBP Exchange Rate Losses Limited as Markets Still Expect UK Recovery

The Pound has seen bullish movement throughout the week so far, but its rally lost some momentum today.

After days of strong UK data and coronavirus recovery hopes, today’s UK retail sales results were highly disappointing.

Retail sales contracted at a shocking –8.2% month-on-month, and the yearly figure contracted at –5.9%, well above the expected figure of –1.3%.

This caused the Pound to slip today, amid fears that the pandemic lockdown has hurt UK consumer activity more than feared.

However, the Pound’s losses were limited as well. This is because markets still expect Britain to recover strongly from the pandemic and optimism around this has only grown amid speculation that the government will discuss easing lockdown soon.

On top of this, the latest UK PMI projections for February actually beat expectations. Most notably, services printed at 49.7, much closer to the 50 point mark separating contraction from growth than the estimated figure of 41.

It was also far above January’s figure of 39.5.

According to Howard Archer, Chief Economist Adviser at the EY Item Club:

‘The ‘flash’ purchasing managers’ survey for the UK manufacturing and services sectors indicated that overall activity was close to stabilisation in February after contracting at the fastest rate for eight months in January.

While the improvement in activity eases some concern about the potential size of contraction in the UK economy in Q1, it still appears that the UK is being much more affected by lockdown and restrictions now than it was in Q4 2020. The EY Item Club expects the economy will experience a Q1 contraction – possibly around 4% quarter-on-quarter.’

CAD Exchange Rates Steady after Thursday’s Job Report Shock

The Canadian Dollar plunged to its worst levels in almost a year against the Pound yesterday, as it was hit by concerns over Canada’s job market.

Thursday’s American session saw the publication of ADP’s latest Canadian job market report.

ADP’s employment change figure printed at a dire –231.2k, well well below the expected result of around –14.1k. It showed that Canada’s economy was being hit more by the coronavirus pandemic this year so far than expected.

According to Nela Richardson, Chief Economist at ADP:

‘January reported a decrease in jobs, the largest decrease since May 2020 during the lockdown period,

The surge in COVID-19 cases and public health restrictions resulted in mass layoffs. Job losses were reported in every sector, led by trade, transportation and utilities; leisure and hospitality; and construction.’

Today though the Canadian Dollar’s appeal has recovered slightly.

The Canadian currency is benefitting from weakness in its rival the US Dollar (USD), as well as lingering strength in prices of oil. The Canadian Dollar is often correlated to oil prices as oil is Canada’s biggest export.

GBP/CAD Exchange Rate Forecast: Coronavirus Lockdown Developments in Focus

Markets are expecting developments on Britain’s coronavirus lockdown as soon as next week, which could cause big movement in exchange rates.

If the UK government is more cautious than hoped on the possibility of easing lockdown, the Pound could shed much of its recent strength and tumble next week.

On the other hand, solid signals that lockdown will be eased, combined with more optimistic UK vaccine developments, will only make markets even more optimistic that the UK economy will be among the first major economies to recover from the pandemic.

Upcoming UK job market data, due on Tuesday, could also influence Pound movement.

As for the Canadian Dollar, it will remain driven by oil prices and developments in Canada’s own coronavirus situation.

Next week’s Canadian economic calendar will be a little quieter. A speech from Bank of Canada (BoC) Governor Tiff Macklem could cause movement on Tuesday, and wage data due on Thursday could also cause a little movement in the Pound to Canadian Dollar (GBP/CAD) exchange rate.
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