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Pound Canadian Dollar (GBP/CAD) Exchange Rate Plummets; CAD Finds Support

November 10, 2021 - Written by John Cameron

Pound-to-Canadian Dollar-rate-

GBP/CAD Exchange Rate Plunges on Sterling Weakness

The Pound Canadian Dollar (GBP/CAD) exchange rate has fallen steeply today as a lack of data exposes the Pound (GBP) to headwinds and CAD benefits from oil prices and a hawkish signals from the Bank of Canada.

At the time of writing, GBP/CAD is trading at C$1.6809, down 0.3% from today’s opening levels.

Pound (GBP) Subdued on Brexit Headwinds, Downbeat Report

The Pound is falling against the majority of its peers as a lack of significant data leaves the currency to trade on external factors.

Sterling sentiment is muted over tense discussions between the UK and EU over the Northern Ireland protocol and a downbeat forecast from the National Institute of Economic and Social Research (NIESR).

NIESR warns that the UK will suffer stuttering growth, rising inflation and widening income inequalities in the coming months, and highlights the rise in regional inequality.

Analysts predict that persistent supply-chain bottlenecks and Brexit headwinds are likely to damage Britain’s economy over a number of years, blaming government mismanagement. According to Jagjit Chadha, the NIESR director:

‘We’re getting the economic management of the UK economy wrong - there is a persistent problem of economic growth disappointing on the downside.’

‘Short-run supply problems will persist… because our exit from the EU has acted to reduce the pool of labour, contributed to lower levels of firm investment and led to contraction in the size of our trade sector.’

A speech from the Bank of England (BoE)’s Silvana Tenreyro later today is unlikely to stimulate bullish trading, as Tenreyro is a known dove.

Canadian Dollar (CAD) Firms on Oil, BoC Tailwinds

The Canadian Dollar (CAD) is rising against its peers today, supported by rising oil prices and optimism surrounding comments from the Bank of Canada’s Tiff Macklem.

Through yesterday’s session, the ‘Loonie’ struggled to find direction despite the price of crude oil climbing for the third day in a row; investors maintained a bearish eye on the movements of other central banks to determine likely BoC forward guidance.

Canadian government bond yields were lower across the curve and economists feared the BoC risked curtailing economic expansion if it shifted focus from reducing slack in the economy to tamping down inflation.

Today however, the central bank's hawkish pivot and rising energy prices have put some wind under the Canadian dollar's wings – according to economists at the Bank of Montreal.

BoC governor Macklem maintains that the central bank is more than capable of bringing inflation back down to its target, commenting on Sunday that:

‘We know what our job is… We’re going to continue to adjust our monetary settings. The goal is to secure that complete recovery, and bring inflation back to target.’

Markets are subsequently anticipating an imminent rate hike, to a mixed response: echoing the concerns of policymakers in the UK and abroad, Frances Donald, chief economist at Manulife Investment Management, remarks that:

‘The bulk of the inflation isn’t coming from factors that the BoC’s interest rate hike can impact… My concern is that if we do see a Bank of Canada that is raising rates as aggressively as markets are saying, that’s actually going to do very little to help our inflation problem.’

GBP/CAD Exchange Rate Forecast: External Factors to Drive Movement?

Looking ahead, external factors are likely to be the main driver of GBP/CAD movement today given a lack of significant data for either currency.

A speech by BoE policymaker Silvana Tenreyro could impact Sterling dynamics, indicating the current stance of central bank officials.

Risk sentiment may influence Pound sentiment, while oil prices will undoubtedly affect CAD trading. If Brexit tensions continue between the UK and EU, both currencies may experience risk-off headwinds.

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