Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Edges Higher as BoC Leave Rates on Hold
UPDATE: The Pound Sterling Canadian Dollar (GBP/CAD) exchange rate rose by around 0.3% this afternoon. This left the pairing trading at around CA$1.7579.
The Bank of Canada (BoC) held interest rates steady today at 0.25% while adding provincial and corporate bonds to its quantitative easing program.
The bank warned that the coronavirus pandemic was likely to cause the largest-ever near term downturn the country’s economy has seen.
The BoC also suspended its regular economic forecasts, stating the current uncertainty has clouded the outlook.
The BoC warned:
‘Despite a high level of uncertainty, these estimates suggest that the near-term downturn will be the sharpest on record.’
Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Muted on IMF’s Recession Warnings
The Pound Sterling Canadian Dollar (GBP/CAD) exchange rate remained flat this morning. This left the pairing trading at around CA$1.7551.
The Canadian Dollar remained under pressure today after oil prices continued to fall.
Increasing worries about oversupply as the coronavirus pandemic throttled oil demand and warnings from the IMF sent prices lower.
Added to this, prices fell after US crude inventories rose by 13.1 million barrels. This fuelled concerns that lower demand and the record output cut from OPEC+ would not offset the weaker demand due to coronavirus.
The International Monetary Fund (IMF) warned that the global economy will shrink by 3% this year, marking the longest downturn since the Great Depression in the 1930s.
This dampened investor sentiment, sending prices lower. In its report, the IMF noted:
‘It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago.
‘The Great Lockdown, as one might call it, is projected to shrink global growth dramatically.’
US Dollar (USD) Demand and Coronavirus Fears Leave Sterling (GBP) Flat
Pound sentiment was left dampened this morning after traders began to flock back to the safety of the US Dollar (USD).
Growing concerns that the coronavirus pandemic will be greater and more drawn out than expected caused traders to move back to safety.
Analysts have warned that it remains unclear whether or not economies will recover quickly or if the downturn will last longer than expected.
According to Ulrich Leuchtmann, head of FX strategy at Commerzbank:
‘That means the worst might yet be to come, facing the market with an ice bucket challenge. In that case risk aversion would rise, allowing the Dollar to appreciate again.’
Meanwhile, Sterling also remained under pressure after the British Chambers of Commerce showed that two-thirds of small British companies have furloughed staff.
Added to this, the Office for Budget Responsibility (OBR) estimates that around 30% of staff would be furloughed.
They also noted that even with this help from the government, unemployment in the UK could still rise by close to two million in the coming months. This would bring the country’s unemployment rate to around 10%.
Pound Canadian Dollar Outlook: Bank of Canada and Oil Prices in Focus
Looking ahead to this afternoon, the Canadian Dollar (CAD) could suffer some losses against he Pound (GBP) following the Bank of Canada’s (BoC) interest rate decision.
While the bank is expected to leave interest rates unchanged, if the monetary policy report is overly dovish, warning of a steep economic downturn, the ‘Loonie’ will suffer losses.
Meanwhile, if oil prices continue to fall the Canadian Dollar will slump further this week.
If coronavirus and the risk of a global recession sends oil prices lower at the end of the week, the Pound Canadian Dollar (GBP/CAD) exchange rate will edge higher.
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