GBP/CAD Rises as Bank of England Eases Fears of Negative Interest Rates

The Pound to Canadian Dollar (GBP/CAD) rose by 0.3% today, with the pairing currently fluctuating around CA$1.73.

Sterling rose following the Bank of England (BoE) Governor Andrew Bailey striking a cautious tone on whether to cut UK interest rates into negative territory. This steadied growing speculation over negative interest rates and buoyed confidence in the British economy.

Last Week: GBP/CAD Sinks as Downing Street Warns of Lots of ‘Caveats’ for Easing Lockdown

The GPB/CAD exchange rate struggled last week as the UK entered another national Covid-19 lockdown, which limited confidence in Sterling and the nation’s economic recovery.

Prime Minister Boris Johnson also added that there were lots of ‘caveats’ for easing lockdown restrictions in the months ahead.

Last week also saw the UK Services PMI for December fall below consensus to 49.4.

Tim Moore, the Economics Director at IHS Markit, commented on the report:

‘December data confirm that the UK service sector has swung back into decline after the partial rebound seen during the third quarter of 2020, largely reflecting tighter restrictions on consumer services amid the worsening trajectory of the pandemic.’

Meanwhile, the Canadian Dollar (CAD) began to pick up as oil prices showed a steady increase, with WIT crude prices rising beyond the key $50 per barrel.

As a result, the commodity-linked ‘Loonie’ benefited from rising oil prices owing to rising optimism in the global economy as Covid-19 vaccine rollouts intensify across Europe and the US.

However, following Thursday’s publication of the Canadian Ivey PMI figure for December, which fell below forecasts to 46.7, some CAD investors were left feeling jittery.

Consequently, Canadian markets remained largely cautious as the PMI revealed the first contraction in the nation’s economy since May.

Three Things to Watch out for This Week

  1. UK Manufacturing and Industry Data

Friday will see the release of the latest UK Manufacturing and Industrial Production data for November. If this shows any signs of improvement in the two sectors, we could see Sterling rise.

  1. UK Covid-19 Developments

The UK’s Covid-19 epidemic will continue to drive the GBP/CAD exchange rate this week. If Downing Street announces further and stricter lockdown restrictions, we will see the Pound suffer.

  1. Oil Prices

The commodity-linked Canadian Dollar will continue to be driven by oil prices this week. As a result, we could see the ‘Loonie’ head higher if prices continue to rise on Covid-19 vaccine optimism.

GBP/CAD Outlook

The GBP/CAD exchange rate will fluctuate on UK Covid-19 news this week. If the infection rate continues to rocket, we would see Sterling suffer.

However, if the Covid-19 vaccine programme speeds up, opening up the possibility of a mid-February easing of lockdown measures, the GBP/CAD exchange rate would head higher.

David Moore

Contact David Moore