UK PMI Uptick Fails to Prevent Pound Canadian Dollar (GBP/CAD) Exchange Rate Losses
Modest signs of improvement in May’s set of UK PMIs were not enough to offer the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate any particular boost.
While both the manufacturing and services PMIs picked up from the lows seen in April both sectors remained deep in contraction territory, limiting the potential for Pound Sterling (GBP) gains.
With the UK economy still appearing on course to suffer a deep recession in the second quarter GBP exchange rates were left on a generally weak footing.
Support for the Canadian Dollar (CAD) picked up, meanwhile, as markets continued to brace against the prospect of further Federal Reserve policy easing.
A stronger sense of market risk appetite helped to shore up the risk-sensitive CAD, even though confidence in the outlook of the Canadian economy itself remains muted.
Plunge in UK Retail Sales Set to Drive Fresh GBP/CAD Exchange Rate Decline
The mood towards the Pound could sour further on Friday thanks to the release of April’s set of UK retail sales figures.
After the decline seen in March forecasts point towards an even sharper slump in consumer spending, resulting in an expected drop of -22.2% on the year.
As stronger levels of consumer spending have previously helped to shore up economic activity a weak showing here could weigh heavily on the GBP/CAD exchange rate.
Fresh evidence of the disruption stemming from the Covid-19 lockdown may encourage investors to pile out of the Pound ahead of the weekend.
Further weakness could be in store for GBP exchange rates on the back of April’s public sector net borrowing figure.
A sharp increase in government borrowing looks inevitable at this stage, leaving the Pound vulnerable to a fresh bout of selling pressure.
Global Trade Tensions Limit Potential for Canadian Dollar Gains
Any deterioration in market sentiment could easily see the Canadian Dollar trending lower across the board in the days ahead, though.
Simmering tensions between the US and China continued to fuel fears that the global economy could remain under pressure for longer, hampering its ability to bounce back from the pandemic.
Unless friction between the two sides starts to ease the Canadian Dollar looks vulnerable to downside pressure as investors brace against the possibility of fresh trade disruption.
Worries over the domestic economic outlook could also pick up in the near term if March’s Canadian retail sales figures weaken as anticipated.
If sales dropped sharply on the month even before the major impact of the Covid-19 crisis kicked in this could drive CAD exchange rates to shed fresh ground.
Any softening in the oil market could equally put a dampener on the commodity-correlated Canadian Dollar, offering the GBP/CAD exchange rate a potential boost.