As market reaction to the Pfizer Covid-19 vaccine announcement faded the GBP/CAD exchange rate recovered its lost ground, benefiting from a loss of risk appetite.
Last Week: Dip in Unemployment Supports Canadian Dollar Demand
A modest dip in the Canadian unemployment rate shored up CAD exchange rates ahead of the weekend, with investors relieved that conditions within the labour market saw improvement.
An end to the uncertainty over the US presidential election and signs of a breakthrough in the development of a Covid-19 vaccine both offered strong support to the Canadian Dollar on Monday.
Oil prices surged by more than 10% in the wake of the initial Pfizer announcement, helping to push the commodity-correlated Canadian Dollar sharply higher.
While the Bank of England (BoE) failed to make fresh mention of negative interest rates at its November policy meeting this only gave the GBP/CAD exchange rate a limited boost in the short term.
Three Things to Watch out for This Week
1. UK Balance of Trade
Worries over the outlook of the UK economy could see a resurgence on Thursday with the release of September’s trade balance data.
If the trade balance falls into a state of deficit as anticipated this would leave the Pound vulnerable to renewed selling pressure, given existing doubts over the UK’s trade outlook.
2. UK Gross Domestic Product
However, a greater source of volatility is likely in store for the GBP/CAD exchange rate on the back of the third quarter UK gross domestic product report.
Confirmation that the economy delivered a solid rebound in the third quarter may offer some encouragement to the Pound, even though fears of a potential double-dip recession remain.
3. Market Risk Sentiment
With no fresh Canadian data releases on the horizon CAD exchange rates could struggle to find any particular momentum in the days ahead.
Even so, as long as markets gain fresh energy from hopes of a potential end in sight to the Covid-19 pandemic and a greater global economic recovery this may limit the risk of Canadian Dollar losses.
Evidence of resilience within the UK economy may encourage the GBP/CAD exchange rate to recover further ground, in spite of lingering doubts over the fourth quarter growth outlook.