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Pound Canadian Dollar Exchange Rate Subdued amid easing of UK Covid Measures & High Oil Prices

January 20, 2022 - Written by John Cameron

Pound Canadian Dollar (GBP/CAD) Exchange Rate Muted as Both Currencies Rise

The Pound Canadian Dollar (GBP/CAD) exchange rate dipped overnight but has remained range-bound today, as both currencies see some upward movement.

The Pound (GBP) has seen a boost following the easing of the country’s Covid-19 restrictions, whilst the Canadian Dollar (CAD) has pushed upward by high crude oil prices.

At time of writing the GBP/CAD exchange is at around $1.7012, virtually unchanged from this morning’s opening figures.

Pound (GBP) Boosted by Easing of Covid-19 Restrictions

The Pound (GBP) has been pushed up against the majority of its competitors today following the announcement on Wednesday that the UK government would be easing the country’s ‘Plan B’ restrictions.

The announcement, made by Prime Minister Boris Johnson in the House of Commons, signalled an end to many of the restrictions introduced by the UK in order to combat the Omicron variant. From 27 January face masks will no longer be mandated as well as the end of mask-use in secondary schools. Work from home guidance has also been dropped as well as the need for Covid passes for entry into certain venues.

Lawrence Young, a virologist at the University of Warwick, was concerned that dropping measures too soon may lead to further infection spikes:

‘There's no guarantee that the levels are going to continue to fall as they are at the moment. I just don't think we've got any room for complacency at the moment, but I do understand the economic imperative. People want to get back to normal.’

Ministers are hoping that the announcement will help restore confidence in Boris Johnson’s premiership after a rocky few weeks for the PM. Allegations of multiple illegal gatherings at 10 Downing Street have shaken confidence in the PM with many calling for his resignation and one MP, Christian Wakeford, defecting to the Labour opposition. Confidence in Sterling could continue to be dragged down by this ongoing instability.

Canadian Dollar (CAD) Pushed Upward by Highest Oil Prices since 2014

The Canadian Dollar has remained buoyed against a handful of its rivals today, as the currency benefitted from record-high oil prices and expectations of an interest rate hike by the Bank of Canada (BoC).

Oil prices on the West Texas Intermediate climbed to $87.91 a barrel on Wednesday, its highest level since October 2014, although profit-taking has since caused the commodity to slip slightly. Strong demand and short-term supply disruptions have helped keep oil at a high level over the course of the week.

Expectations of an interest rate hike by the Bank of Canada (BoC) may have also helped to push CAD upward. Canada’s Bank of Nova Scotia expects the BOC to pursue a hawkish tact and raise the rate to 2% in 2022 after figures on Wednesday showed inflation in the country hit a 30-year high.

Scotiabank Chief Economist Jean-Francois Perrault was frank in his assessment the action the BoC needed to take:

‘The simple reality is that the very serious public health impacts of omicron and the associated economic consequences do not outweigh the pressing need to withdraw monetary stimulus.’

GBP/CAD Forecast: Will Poor Retail Sales Undermine UK Growth Recovery?

Looking ahead to the rest of the week, Friday’s data releases for the UK could see Sterling dip following a forecast fall to December’s retail sales. The consumer confidence index for January meanwhile is expected to remain at December’s level of -15.

These figures could also undermine confidence in fourth quarter growth for the UK, although a speech by the Bank of England’s (BoE) Catherine Mann could help boost the Pound should she reveal any further indicators of a rate rise by the central bank.

For Canada, Friday is forecast to bring a dip in November’s retail sales figures which could see the Canadian Dollar fall. The commodity-tied ‘Loonie’ is also likely to continue to be buoyed by the current high price of crude oil.

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