The Pound continues to see broadly mixed movement this week so far, but due to considerable weakness in the Canadian Dollar the British Pound to Canadian Dollar (GBP/CAD) exchange rate has been able to rebound from its worst levels. Concerns over the coronavirus outbreak have hit the Canadian Dollar especially hard as they are also causing significant issues in oil markets. The Canadian Dollar looks likely to see continued weakness as oil prices remain poor.
After opening last week at the level of 1.7515, GBP/CAD briefly enjoyed a surge in demand. GBP/CAD benefitted from the Canadian Dollar’s oil price-induced losses and rose to a high of 1.7996, the best level for the pair since April 2018.
However, after a few days the Pound’s strength faded and GBP/CAD ultimately tumbled. GBP/CAD closed the week over five cents lower, and ten cents below its best levels, in the region of 1.6959.
GBP/CAD touched on a new 2020 worst level of 1.6917 this morning, but has since been edging higher due to the broad weakness of the Canadian Dollar. At the time of writing, GBP/CAD is trending in the region of 1.7082.
GBP Exchange Rates Struggle for Direction as Coronavirus Uncertainty Persists
After weeks of surprising resilience in the Pound, the British currency finally began to plummet on coronavirus jitters over the past few weeks.
The number of coronavirus cases in Britain is rising, and the government’s ‘herd-immunity’ stance has done little to relieve the concerns of markets.
As a result, the Pound has finally been sold on rising coronavirus concerns, and hopes of UK economic resilience are not strong enough to help the British currency to hold its ground.
Instead, the Pound has been weighed by coronavirus jitters and driven more by strength in rival currencies.
For example, last week saw the US Dollar (USD) finally see a resurgence in demand, boosted by safe haven demand as the pressure of Federal Reserve interest rate cut bets became more priced in.
As the Pound had been benefitting from US Dollar weakness in February, the US Dollar’s rebound last week throttled the Pound.
GBP/CAD has also, of course, been influenced by movement in the Canadian Dollar.
CAD Exchange Rates Fail to Hold Their Ground as Virus and Oil Price Fears Dominate
Last week, the Canadian Dollar experienced a brief rebound in demand that helped it to push GBP/CAD lower towards the end of the week.
Canada’s government and the Bank of Canada (BoC) took coordinated action on Friday, promising fiscal stimulus and cutting Canada’s interest rates. This news boosted Canadian Dollar demand towards the end of the week.
However, when markets opened this week the Canadian Dollar was unappealing once again.
The Canadian Dollar remains strongly correlated to the coronavirus outbreak, due to its status as a trade-correlated currency and its correlation to oil prices.
Oil prices have been plummeting lately, with an oil price war spurred by the coronavirus leading to considerable losses.
On top of this, markets have been quickly speculating that the Bank of Canada will make another emergency interest rate cut soon. According to Benjamin Reitzes, Canadian Rates and Macro Strategist at BMO Capital Markets:
‘It’s doubtful the BoC will wait until their next policy meeting in April to slash rates a final 50 bps,’
GBP/CAD Exchange Rate Forecast: Canadian Dollar May Remain Weak
While investors have little reason to buy the Pound this week, they have even less reason to buy the Canadian Dollar.
Oil prices continue to fall amid the coronavirus pandemic and the oil price war. These factors are likely to keep the Canadian Dollar highly unappealing for the time being, making it easier for the Pound to recover.
Sterling is indeed more likely to recover if its rivals remain weak, as its movement is being driven mostly by the strength of other major currencies.
Upcoming data would typically be closely watched by markets, including UK job market stats tomorrow and Canadian inflation on Wednesday.
However, due to the coronavirus pandemic dominating the global outlook, the Pound to Canadian Dollar exchange rate is more likely to be driven by this and risk-sentiment driving the Canadian Dollar.
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TAGS: Pound Canadian Dollar Forecasts