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Pound Canadian Dollar Exchange Rate News: GBP/CAD Rangebound as UK GDP Slows

May 12, 2022 - Written by John Cameron

GBP/CAD Subdued as UK GDP Growth Rate Slows

The Pound Canadian Dollar (GBP/CAD) exchange rate is trading in a narrow range this morning amid slower-than-expected UK GDP.

At the time of writing, the GBP/CAD exchange rate is trading at approximately CA$1.5880, with minimal movement from today’s opening levels.

Pound (GBP) Muted on Slower-Than-Forecast UK GDP Growth Rate

The Pound (GBP) is rangebound against the Canadian Dollar (CAD) this morning after the latest UK GDP reported a slowing of growth.

During the first three months of 2022, the UK GDP expanded by 0.8%. This is a slower expansion than both the fourth quarter of 2021 and market forecasts of 1.3% and 1%, respectively.

Largely responsible for the economic expansion is a 0.4% rise in the service sector, with the UK GDP currently 0.7% above pre-pandemic levels.

The accompanying month-on-month release may be more worrying for GBP investors. Growth in March was shown to have contracted, after stalling in February.

The slowdown will stoke recession fears, particularly as markets anticipate UK GDP may continue to deteriorate throughout the year.

Michael Hewson of CMC Markets warns that ‘…if the Bank of England (BoE) is to be believed this quarter could be as good as it gets this year for the UK economy.’

The risk of a recession comes as the UK cost of living crisis weakens the Pound’s purchasing power and weighs on consumer spending.

Ed Monk, associate director for Personal Investing at Fidelity International, said:

‘Soaring energy, fuel and food prices continue to eat into household budgets.

‘With inflation reaching 7% [in March] households are navigating largely unfamiliar financial territory while also trying to prepare for the likelihood that bills will rise still further.

‘Despite government promises this week to address the cost of living challenge, the threat of recession appears to be growing.

‘By the end of the second quarter of 2025 the UK economy is expected to be barely bigger than it is today.’

Canadian Dollar (CAD) Subdued amid Weak Oil Prices

The commodity-linked Canadian Dollar (CAD) is muted against the Pound (GBP) this morning as oil prices fall.

At the time of writing, WTI oil is trading at $103.17 per barrel, down by 2.47%, and Brent is trading at $105.13, down by 2.31%.

The fall in oil prices comes as the possibility of a global recession edges closer.

Earlier in the week, it was revealed Chinese exports had fallen as Beijing maintains its ‘zero covid’ policy’ and holds large cities in lockdown.

As a result, this is weighing on oil demand and preventing the ‘Loonie’ from gaining any significant momentum.

GBP/CAD Exchange Rate Forecast: Will the Return of Brexit Weigh on GBP Exchange Rates?

Looking ahead, the Pound Canadian Dollar exchange rate may be pressured by negotiations regarding the Northern Ireland Protocol.

The UK Foreign Secretary, Liz Truss, is expected to meet with her EU counterpart Maroš Šefčovič later today. Truss will reportedly offer the EU 72-hours to adjust their position regarding the protocol.

If the EU remains unwilling to change their current stance, the UK government may make unilateral amendments. This is likely to cause tension between the UK and the EU, and potentially disrupt trade.

Meanwhile, due to an absence of Canadian economic data scheduled for release during the rest of this week’s session, the ‘Loonie’ is likely to be driven primarily by oil market dynamics.

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