Pound Canadian Dollar Exchange Rate Forecast: Weakness Expected on UK Budget Announcement

The Pound to Canadian Dollar exchange rate held onto some of its traction as December’s Canadian gross domestic product data failed to pick up as anticipated.

Last Week: Pound Canadian Dollar Exchange Rate Benefits from Widened Canadian Deficit

A surprise widening of the December budget deficit saw the Canadian Dollar fall out of favour ahead of the weekend.

As forecasts had pointed towards the deficit narrowing to C$-12.2 billion investors were naturally disappointed to find that the figure had instead grown to C$-16.15 billion.

This deterioration offered fresh cause for concern over the outlook of the Canadian economy, even in the wake of January’s improved producer price index figures.

On the other hand, mixed messages from Bank of England (BoE) policymakers on the subject of inflation helped to bolster the GBP/CAD exchange rate further on Friday.

Three Things to Watch out for This Week

1. UK Budget 2021

Worries over the resilience of the UK economy could pick up once again on the back of Wednesday’s unveiling of the 2021 Budget.

Unless the government funnels greater levels of support towards struggling businesses the prospect of increased job losses and economic slowdown on the horizon could weigh heavily on the Pound.

2. Canada Labour Productivity

Confidence in the health of the Canadian labour market may improve with the release of the fourth quarter labour productivity reading, meanwhile.

With forecasts pointing towards a solid 5% rebound in productivity following the -10.3% slump seen in the third quarter this could offer CAD exchange rates a rallying point.

3. Canada Balance of Trade

Further volatility could be in store for the Canadian Dollar ahead of the weekend if January’s trade balance deficit narrows as forecast.

Signs of improved trade conditions may give CAD exchange rates a boost, with a recovery in trade likely to help offset lingering domestic economic weakness.

GBP/CAD Exchange Rate Outlook

Evidence of increased strength within the Canadian economy may well keep the Pound to Canadian Dollar exchange rate biased to the downside in the days ahead, especially if the UK Budget fails to impress.

Louisa Heath

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