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Pound Canadian Dollar (GBP/CAD) Exchange Rate Rises as CAD Weighed Down by Weak USD

December 2, 2022 - Written by John Cameron

Pound Canadian Dollar (GBP/CAD) Exchange Rate Ticks Up as Weakening US Dollar Dents ‘Loonie’

The Pound Canadian Dollar (GBP/CAD) exchange rate trended slightly higher on Friday, as the Canadian Dollar was dragged down by a weakening US Dollar.

At the time of writing, GBP/CAD traded at around CA$1.6502, an increase of roughly 0.2% from Friday’s opening rates.

Canadian Dollar (CAD) Dragged by Weakening US Dollar

The Canadian Dollar (CAD) saw middling trade on Friday, as the ‘Loonie’s close correlation to a weak US Dollar (USD) saw the currency on the defensive.

The ‘Greenback’ weakened on the back of a dovish pivot from Federal Reserve Chair Jerome Powell, who indicated that the Fed was able to slow the pace of interest rate hikes, prompting a mass sell-off of USD.

CAD was weakened by the rush, despite a positive PMI reading, and oil prices beginning to recover. On Friday, oil prices lagged somewhat again, which added further headwinds to the oil-linked ‘Loonie’.

The lag came as the European Union edged closer to agreeing a price cap on Russian crude oil, eyeing a $60 maximum per barrel. While the lower-than-expected cap may introduce support for oil prices further down the line, the short term effect saw a fall in prices.

Similarly, a lack of compelling economic data on Friday has resulted in CAD lacking firm direction, with investors looking to other currencies with more compelling investment turnover.

Pound (GBP) Muted as Northern Ireland Optimism Countered by Struggling Retail

The Pound (GBP) saw slower trade on Friday, as optimism over the Northern Ireland Protocol was mollified by the continued struggles of UK retailers.

Ursula von der Leyen, the European Comission’s President, delivered a speech on Thursday which indicated positivity that a solution for the Northern Ireland Protocol was within reach.

She stated: ‘The European Union and the United Kingdom are still members of the same extended family, even if we no longer live in the same house. My contacts (with) Prime Minister Sunak are encouraging and I trust we can find the way. If there is the political will in the UK, I am very confident that we can reach a positive conclusion. The solutions we find must ensure that the single market continues to function in Ireland and elsewhere in the European Union. I think if both sides are sensitive to this careful balance, a workable solution is within reach. I believe we have a duty to find it.’

However, the optimism was weighed down by reported retail footfalls in November. Retailers saw a decline of 12.3% in footfall since 2019, with the cost-of-living crisis serving to restrict the amount consumers can spend, and with industrial action affecting their ability to reach shopping centres.

With little sign of industrial action abating this year, Sterling may continue to be weighed down the strikes.

Pound Canadian Dollar (GBP/CAD) Exchange Rate Forecast: BoC Interest Rate Decision in Focus

Looking ahead to next week, the core catalyst of movement for GBP/CAD is likely to be the Bank of Canada’s (BoC) interest rate decision on Wednesday.

Markets anticipate the BoC to announce a modest 25bps rate hike, and have largely already priced this in. However, should the BoC take a more aggressive stance, CAD could strengthen.

Tuesday brings the latest balance of trade figures and the Ivey PMIs for Canada. With Canada’s trade surplus forecast to increase, but the Ivey PMI expected to show a contraction to 49, CAD may see a muted day of trade.

Elsewhere, OPEC+ are scheduled to meet on Sunday. If oil production is increased, the oil-linked ‘Loonie’ could strengthen.

For the Pound, the recent lack of macroeconomic data continues through to next week. As such, domestic headlines will likely remain the core driver of movement for Sterling. Any further downbeat economic news could bring GBP down.

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