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The Pound Canadian Dollar (GBP/CAD) exchange rate feel back after a tough week which saw concerns over inflation compounded by troubling UK domestic news, while oil prices staged a recovery.
Overall, GBPCAD dropped to close the session at around the CAD$1.55 mark.
Pound (GBP) Exchange Rates Soften on Darkening Economic Landscape
The Pound (GBP) wavered at the start of the week as data was thin on the ground, opening Sterling up to domestic issues and market sentiment as recession fears continued to grow.
With a potential trade war with the EU on the horizon, MPs voted 295 to 221 in favour of the Northern Ireland protocol bill. The successful vote brings the UK ever closer to unilaterally altering the Brexit agreement, and continued tensions between the UK and the EU continued to weigh on the Pound.
Midweek, and Sterling was under pressure once again, as the European Central Bank (ECB) Forum saw key speeches from the major central banks as they outlined their respective inflationary challenges.
Unfortunately, Bank of England (BoE) Governor Andrew Bailey failed to buoy Sterling sentiment as he adopted a more dovish tone than his peers, indicating the BoE might prefer a more gradual approach to rate hikes.
Weighing on the Pound further was the diverging policy between the BoE and the Federal Reserve, with Fed Chair Jerome Powell’s hawkish outlook directly contrasting Bailey’s speech.
Elsewhere, a flurry of domestic issues continued to exert downward pressure as Royal Mail workers could join the likes of railway workers and barristers in planning organised walkouts over pay disputes. A ‘summer of discontent’ could well be on the cards, further weighing on the Pound.
Compounding these issues towards the end of the week was the confirmation of UK’s final GDP report for the first quarter of this year. Despite printing as expected, the bigger picture painted a bleaker look as business investment was revised lower, shrinking 0.6% QoQ compared to the first three months of this year.
Canadian Dollar (CAD) Exchange Rates Rebound as Oil Prices Recover
The Canadian Dollar started the week trading rangebound as a lack of data left the commodity-linked ‘Loonie’ susceptible to market sentiment and oil price fluctuations.
Midweek saw a boost for the Canadian Dollar as WTI crude oil saw heights of $113.80 a barrel as China recorded its first expansion in the manufacturing sector since February, and the steepest pace in over six months. With the resumption of the world’s largest manufacturer after major cities emerged from strict Covid lockdowns, the demand for oil rose.
Towards the end of the week, crude oil prices plummeted overnight as central banks continued to raise concerns over global growth forecasts and highlighting the slowing demand. A 4% drop overnight saw the ‘Loonie’ come under pressure once again as the unabating Ukraine conflict exacerbates supply and weighs on the global economy.
Meanwhile, the Canadian economy appeared to have shrunk in the month of May as preliminary data shows a 0.2% contraction, with declines expected for mining, oil and gas extraction, and quarrying. However, the GDP for April has been confirmed to have expanded by 0.3% MoM.
GBP/CAD Exchange Rate Forecast: Domestic Issues to Further Weigh on Pound?
Looking ahead to next week’s session, the Pound Canadian Dollar exchange rate could fluctuate as a several key pieces of data are due to be released, while domestic issues may continue to weigh on the Pound.
The Canadian Dollar could see a modest boost from the printing of several key data releases. Manufacturing PMI is set to print at 56, a marginal drop from the previous month’s 56.8. A slowdown in manufacturing activity could weigh on the ‘Loonie’ as the unemployment rate is due to remain steady at 5.1%.
Elsewhere, the Pound could see further downward pressures in the form of Brexit troubles as the Northern Ireland protocol looks set to pass through parliament, and if Royal Mail vote on walkouts, the ‘summer of discontent’ will continue.
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