Even though last week saw a broad surge in demand for the Pound and a two cent gain for the British Pound to Canadian Dollar (GBP/CAD) exchange rate, the pair has already shed a significant chunk of those gains since markets opened this morning. Now that Britain has left the EU, markets are becoming more anxious about Brexit again. Meanwhile, the Canadian Dollar is rebounding thanks to a mixture of Canadian data and global market sentiment.
Last week saw GBP/CAD briefly slip lower from the week’s opening levels of 1.7186, before surging over three cents in the second half of the week and closing the week right around a high of 1.7479.
This was the best GBP/CAD level in a month and a half, since mid-December 2019.
However, despite last week’s significant gains, GBP/CAD has been doing a poor job of holding its ground since markets opened today. GBP/CAD has already shed well over a cent since markets opened as Sterling plunges, and at the time of writing the pair is trending in the region of 1.7286.
GBP Exchange Rates Plunge as Hard Brexit Fears Return
The Pound was one of last week’s most bullish currencies, seeing significant advances on the back of a more optimistic than expected Bank of England (BoE).
However, Sterling is by far one of today’s weakest major currencies, seeing significant losses against many major rivals as investors speculate what might be on the way for the Brexit process.
Britain finally left the EU at the end of last week, beginning a transition period which will last until the end of 2020.
Over the weekend, UK Prime Minister Boris Johnson poured cold water on lingering market hopes for a softer Brexit. Johnson said that the UK would refuse to align with EU rules or regulations in the post-Brexit relationship, potentially limiting the potential closeness of a trade deal.
This, as well as comments from EU negotiators suggesting that a deal would be difficult without some alignment, worsened market concerns of a possible hard Brexit at the end of 2020.
According to Adam Cole, Chief Currency Strategist at RBC Capital Markets:
‘Sterling appears to be coming off on the not very encouraging signs from the two sides at the start of the negotiations. They are positioning themselves at two extremes,’
CAD Exchange Rates Recover but Bank of Canada (BoC) Uncertainties Limit Gains
The trade-correlated Canadian Dollar plummeted last week. The currency was driven lower by market panic over a coronavirus outbreak, which caused commodities and risk-correlated assets to weaken.
Prices of oil, Canada’s most lucrative export, were hit especially hard by oil prices. As a result, the oil-correlated Canadian Dollar saw poor performance last week.
The Canadian Dollar remained weak, even as Canada’s latest growth stats beat expectations on Friday. According to Krishen Rangasamy, Analyst at National Bank of Canada:
‘A colder-than-usual November boosted utilities output, something that’s likely to reverse. But there were also more lasting gains including in the construction sector ─ which reflected a resurgent housing market ─, education, health and professional services.’
The stronger growth data was part of the Canadian Dollar’s rebound today however.
While the Canadian Dollar’s rebound was limited by concerns about a more cautious Bank of Canada (BoC) lately, stronger data as well as lightened coronavirus concerns led to strong gains in the currency today.
GBP/CAD Exchange Rate Forecast: Canadian Data Could Support Further Recovery
If Brexit concerns are returning and likely to keep some pressure on the Pound, and concerns over a coronavirus outbreak are starting to soften, the Pound to Canadian Dollar exchange rate could keep sliding.
As the Canadian Dollar is benefitting from last week’s stronger than expected Canadian growth data, upcoming Canadian data could further boost CAD support if it beats forecasts.
Markets will be watching this afternoon’s Canadian manufacturing PMI data, as well as trade balance data due on Wednesday and key employment stats on Friday.
While Canadian data and risk-sentiment will remain key for Canadian Dollar movement, Pound investors are becoming increasingly focused on Brexit again.
Unless Brexit jitters calm again somewhat, Wednesday’s UK services PMI may only have limited impact on the Pound to Canadian Dollar exchange rate.
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