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GBP/CAD Forecast: Pound Lacks Support amid Energy Concerns

October 7, 2021 - Written by John Cameron

GBP/CAD Exchange Rate Limited amid Energy Concerns

The Pound Canadian Dollar (GBP/CAD) exchange rate is struggling to break higher today amid concerns over the threat of an energy crisis in the UK and CAD receiving support due to a more upbeat market mood.

Despite crude prices slipping, the Canadian Dollar is managing to hold this week’s gains, with GBP/CAD trading at 1.7120 at the time of writing.

Pound (GBP) Struggles on Threat of Looming Energy Crisis

The Pound (GBP) is limited so far today as concerns over UK energy prices threatening to disrupt economic activity weigh on Sterling.

Rising gas prices hit fresh record highs on Wednesday before falling back slightly after Russian President Vladimir Putin said the country could increase supply to Europe, which in turn appeared to stabilise prices and concerns.

The soaring wholesale cost of gas has led to fears of industry shutdowns and blackouts in the UK during winter.

Dr Richard Leese, chairman of the Energy Intensive Users Group, said:

"We have already seen the impact of the truly astronomical increases in energy costs on production in the fertiliser and steel sectors.
"Nobody wants to see a repeat in other industries this winter given that UK EIIs [energy intensive industries] produce so many essential domestic and industrial products and are intrinsically linked with many supply chains.”

In addition, the National Grid warned of a tighter electricity supply than last winter because of rising demand and capacity constraints, forecasting an electricity margin of 6.6%, lower than last year’s 8.3%.

However, UK Business Secretary Kwasi Kwarteng insists the country’s energy supplies will meet demand this winter but that more suppliers could go out of business, saying: “We may well see companies going out of the market.”

Sterling also lacked direction following UK Prime Minister Boris Johnson’s Conservative Party conference speech yesterday.

Johnson’s views on supply chain problems, staff shortages, and inflation alarmed some analysts and business leaders as they considered him unwilling to provide UK businesses support.

Canadian Dollar (CAD) Holds Oil-Driven Gains

The oil-sensitive Canadian Dollar (CAD) has benefitted from rising prices of crude oil this week.

Against the backdrop of soaring natural gas prices and countries looking to alternative forms of energy, and rising demand, WTI crude hit a seven-year high earlier in the week.

In addition, OPEC+ decided to stick to its planned output rather than increasing production to meet demand, pushing prices higher and underpinning CAD exchange rates.

However, since concerns of a looming energy crisis have eased slightly, and gas prices dropped after Putin’s comments, WTI crude prices have fallen back to $77 a barrel, leaving the ‘Loonie’ without as much support.

At the same time, the Canadian Dollar has received support from more positive market sentiment after the US Congress look set to extend the government’s debt ceiling into December, avoiding the US defaulting on debt payments.

Pound Canadian Dollar Forecast: Canadian Data to Push CAD Higher?

The GBP/CAD exchange rate may support to make gains through the rest of the week, while energy concerns limit Sterling, and crude prices remain high to bolster the Canadian Dollar.

Significant Canadian data may also drive movement in CAD, with the Ivey PMI for September released today and last month’s employment data on Friday.

While the PMI data is expected to show business activity slowed slightly, the reading is still firmly in growth territory and any surprises could support CAD exchange rates.

Meanwhile, forecasts point to Canadian unemployment falling in September from 7.1% to 6.9%, offering another boost to CAD exchange rates.

With a lack of notable UK data releases at the end of this week, the Pound may lack traction to move higher. Against the backdrop of a looming UK energy crisis, fragile supply chains, and increasing inflationary pressure, the Pound will be sensitive to any developments, positive or negative.

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