Covid-19 Vaccine Optimism Dents GBP/CAD Exchange Rate

Renewed optimism over progress towards a viable Covid-19 vaccine saw the GBP/CAD exchange rate return to the back foot.

Last Week: Improved Monthly Inflation Failed to Boost the Canadian Dollar

Although the Canadian inflation rate returned to positive territory on the month in October this was not enough to shore up CAD exchange rates last week.

With inflation still trailing far below the Bank of Canada’s (BOC) target markets remain wary of the potential for further monetary loosening measures to come, leaving the Canadian Dollar on a weaker footing.

Even though global oil prices staged a fresh rally on the back of the latest positive developments towards a viable Covid-19 vaccine this failed to drag on the GBP/CAD exchange rate ahead of the weekend.

As UK retail sales delivered an unexpected month of growth in October, reflecting a spike in pre-lockdown spending, the mood towards the Pound generally improved.

Three Things to Watch out for This Week

1. Office for Budget Responsibility Economic and Fiscal Forecasts

Confidence in the outlook of the UK economy could take a fresh blow on Wednesday if the latest OBR forecasts prove negative in nature.

If the OBR signals an increased sense of anxiety over the economic outlook and the potential for a double-dip recession this could weigh heavily on the GBP/CAD exchange rate.

2. Canada Budget Balance

The mood towards the Canadian Dollar could improve on Friday so long as September’s budget balance shows a narrowed deficit.

Any signs pointing towards an improvement in Canadian economic conditions may offer CAD exchange rates a boost as confidence in the wider outlook strengthens.

3. Covid-19 vaccine developments

Strengthening risk appetite could keep the Canadian Dollar on a stronger footing in the days ahead, meanwhile.

As long as Covid-19 vaccines continue to progress towards a state of widespread distribution and availability the prospect of the pandemic coming under control may shore up market confidence and CAD exchange rates.

GBP/CAD Outlook

A sustained state of market confidence could keep the GBP/CAD exchange rate from pushing higher this week, particularly if the Canadian budget deficit narrows.

Louisa Heath

Contact Louisa Heath