March 26, 2021 – Written by Tim Boyer
Largely unsurprising UK retail sales results had little impact on the Pound today, but the British Pound to Canadian Dollar (GBP/CAD) exchange rate is attempting to recover regardless. The Canadian Dollar’s movement has seen a sharp reversal in recent sessions as oil markets become more jittery and yield spreads concern markets.
The Canadian Dollar has been consistently strong in recent weeks. Since opening this week around the level of 1.7355, GBP/CAD has been trending with a downside bias as the Canadian Dollar attempted to extend its rally.
Yesterday, GBP/CAD touched on a low of 1.7185. This was the worst level for GBP/CAD in a quarter, since mid-December.
GBP/CAD has been attempting recovery since then but has struggled to recover all of the week’s losses. At the time of writing on Friday morning, GBP/CAD trends close to the region of 1.7316.
Pound Sterling (GBP) Exchange Rates Struggle to Recover as UK Retail Stats Don’t Impress
Demand for the Pound has been dampened for most of the week. Fresh UK-EU trade tensions and concerns about coronavirus vaccination imports, poor UK inflation rate data and market risk-aversion have kept the British currency relatively unappealing.
Sterling lacks the drive to continue to bullish movement it had been trading on for much of the past month or so. This is because global market optimism about a swift recovery from the coronavirus pandemic is seeing something of a reality check.
Today, Pound investors reacted to the day’s UK retail sales results.
While the report wasn’t hugely surprising, it did fall slightly short of expectations and limit the Pound’s appeal and potential to continue trending strongly.
UK retail sales printed at 2.1% month-on-month in February as expected. However, the yearly figure printed at a slightly worse than expected contraction of –3.7%.
Some analysts believe the data points to a brief rebound in activity when shops reopen, followed by a more modest recovery. According to Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics:
‘Households probably also will prioritise consuming services when businesses reopen and will reallocate funds that recently have been spent on goods. Accordingly, the recovery in retail sales probably will fall flat, after an initial surge when shops reopen. We think sales volumes will be only about 3% above their 2019 level this year’
Canadian Dollar (CAD) Exchange Rates Slump after Weeks of Strong Performance
Investors pulled back on the Canadian Dollar this week, after weeks of surging performance from the trade-correlated currency.
CAD bullishness briefly continued at the beginning of the week, as the currency capitalised on a surge in oil prices. Oil is Canada’s biggest export, so the surge in oil on news of a huge blockage to a key trade route also led to a stronger Canadian Dollar.
However, oil has been sliding from its highs towards the end of the week.
The Suez Canal, a vital trade link, has seen a significant accidental closure as a huge container ship known as ‘Ever Given’ has become stuck fast. It’s believed the ship could remain stuck, blocking trade through the route, for days.
Oil prices have been jittery on the news, seeing surges and tumbles as markets digest it and the ensuing uncertainty.
On top of oil price jitters, the Canadian Dollar is also being pressured by wider yield spreads.
Canadian 10-year yields fell from the highs seen last week, while the 10-year US yield continued to rise. This led to a 16 basis point difference in yields, which is making investors hesitant to keep buying CAD.
GBP/CAD Exchange Rate Forecast: Growth Reports in Focus Next Week
The Pound to Canadian Dollar exchange rate remains weak despite the Canadian Dollar’s losses, and unless upcoming UK data impresses investors the Pound may struggle to advance again.
Next week’s UK economic calendar will be a little quieter. UK housing data is due on Monday, with business investment and growth rate results on Wednesday. The nation’s final March manufacturing report is due on Thursday.
Canada’s economic calendar will see a similar number of key releases. Weekly wage data is due on Tuesday, with growth data on Wednesday and manufacturing PMI data on Thursday.
The biggest results of the week will be the growth rate results due on Wednesday. If they surprise investors they could cause a shift in movement for either currency.
Of course, the coronavirus pandemic continues to cast gloom over both UK and Canadian outlooks. As a result, any surprises in the pandemic or shifts in market sentiment about the direction of global recovery will also be influential for the Pound to Canadian Dollar exchange rate.
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TAGS: Pound Canadian Dollar Forecasts