Pound to Canadian Dollar Exchange Rate Gains Limited by Poor UK Data
This morning saw the publication of some dire UK ecostats, but this only slightly dampened the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate’s climb this week. The Canadian Dollar (CAD), throttled by global coronavirus fears and commodity news, remained less appealing.
While the Pound (GBP) has been weaker against many major currencies this week, GBP/CAD has been edging higher. Since opening this week at the level of 1.7010, GBP/CAD has actually gained over a cent.
Last night, GBP/CAD even touched on a high of 1.7174. This was the best level for the pair in almost a month – since mid-May. At the time of writing, GBP/CAD continues to hold most of this week’s gains and trend near the level of 1.7124.
This is despite market concerns over Britain’s economic outlook worsening further under the coronavirus pandemic. The Canadian Dollar’s status as a currency often correlated to risk and trade sentiment means it is being hit harder by coronavirus jitters than Sterling.
Pound (GBP) Exchange Rates Hit as UK Data Paints Dire Picture for UK Economy
Today’s European session finally saw the publication of much of Britain’s key April growth data. As April was the first month the coronavirus pandemic really impacted the global economy, the data has given investors a better idea over how resilient Britain has been.
The data was even worse than expected in almost all key prints. In particular, production saw huge contractions.
Britain’s economic activity contracted by over –20% in April alone. The three-month average leading into April contracted at –10.4%, rather than the expected –10%.
Concerns remain about the UK government’s mixed handling of the pandemic and the high domestic death-count. Investors are anxious that Britain’s economy could keep being hit hard going forwards.
Markets are also anxious about the action the Bank of England (BoE) could take on the pandemic. BoE Governor Andrew Bailey took a relatively optimistic stance in comments made yesterday:
‘If there is any such thing as a normal recession … this one will be different. There will be elements of a faster recovery, because the first stage of the recovery is literally lifting restrictions and allowing people to go out.
And we see … evidence of elements of that recovery starting.’
Canadian Dollar (CAD) Exchange Rates Being Hit By Market Risk-Aversion
The Canadian Dollar has been one of the weaker major currencies this week. It has fallen against the Pound, even amid Britain’s own gloomy outlook.
This is because the Canadian Dollar is a currency often correlated to market sentiment for risk and trade.
This week is seeing rising global fears of a potential second wave of coronavirus infections. The Federal Reserve’s gloomy outlook on the US economy is further dampening risk-sentiment.
Overall, investors are less optimistic about a big global economic rebound than they were last week. This is the primary cause for the Canadian Dollar’s weakness.
Prices of oil are also weighing on the Canadian Dollar. Oil is Canada’s biggest export. As a result, news that oil was weakening again due to global coronavirus jitters have hit the Canadian Dollar.
Pound to Canadian Dollar (GBP/CAD) Exchange Rate Appeal Could Still Falter
The Pound is currently more appealing than the Canadian Dollar. However, while the Canadian Dollar outlook is dampened by market risk-aversion, there is potentially even more weakness in the Pound outlook.
Concerns about the UK government’s handling of coronavirus and Brexit will continue to weigh on Sterling. This outlook is unlikely to change, unless the government suddenly shifts its stance on the possibility of extending the Brexit transition period.
The government is still ruling out an extension though. Markets are increasingly anxious that this year’s coronavirus pandemic will be followed by a no-deal Brexit next year. This would lead to an extended period of major weakness in Britain’s economy.
The Pound will be a focus next week as well. The Bank of England (BoE) will hold its June policy decision next Thursday. If the bank shows any signs that it is considering negative interest rates, the Pound outlook would be shocked even lower.
Global shifts in risk sentiment and oil prices, meanwhile, will drive the Canadian Dollar.
The Pound to Canadian Dollar (GBP/CAD) exchange rate outlook has the chance of worsening depending on upcoming BoE news and global risk-sentiment.