Pound Canadian Dollar (GBP/CAD) Weakens as UK Economy Contracts

Pound Canadian Dollar Exchange Rate Softens as UK GDP Shrinks

The Pound Canadian Dollar (GBP/CAD) exchange rate is slipping as the UK economy contracted, compounding fears of a recession amid the cost-of-living crisis.

At time of writing the GBP/CAD exchange rate is around $1.5516, falling by 0.3% from the morning’s opening levels.

Pound (GBP) Subdued as Economy Contracts

The Pound (GBP) is struggling for demand today, despite GDP growth printing marginally better than expected. The UK economy contracted by 0.6% MoM in June, versus an expected -1.3%.

An extra working day in May and the moving of the bank holiday for the Platinum Jubilee skewed the data, which saw a 0.5% drop in services and the main driver of June’s slip. Despite the weakening economic outlook, UK GDP is still 0.9% above pre-pandemic levels.

On the quarterly front, the UK economy contracted by 0.1%, the first decline in a year but still better than an expected 0.2% fall. Positive contributions from consumer-facing services saw an uptick in travel agents and tour operators as Covid restrictions relaxed in the tourism industry.

The Bank of England (BoE) predict a modest rebound in the third quarter, but fully expect a recession by the end of the year. James Smith, research director at the Resolution Foundation, said of the data:

‘While the contraction in June partly reflects the timing of platinum jubilee bank holidays, the economy has started a difficult period on a weak footing.

‘And with the Bank of England forecasting that inflation will rise to over 13% in October, and that the economy will slip into recession in Q4, the outlook is bleak.’

Canadian Dollar (CAD) Buoyed on Climbing Oil Prices

The Canadian Dollar (CAD) is enjoying a surge in demand today as oil prices finally stabilised above $94 a barrel, touching a one-week high in the process.

The softening of US inflation buoyed global market sentiment amid the hopes of inflationary pressures finally peaking. The International Energy Agency (IEA) drastically ramped up their demand forecasts alongside worldwide soaring energy prices. With winter on its way and the shift from natural gas to oil is strengthening the black gold.

With more positive data now flowing from China, the world’s largest consumer of oil, WTI crude could see further upside. Chinese retail sales are expected to print positively, and if forecasts prove accurate of a 5% increase, the ‘Loonie’ could see a boost.

Pound Canadian Dollar Forecast: Downbeat UK Economic Outlook to Weigh Further on Sterling?

With data remaining thin going into the weekend, market sentiment will dictate the Pound Canadian Dollar exchange rate. On top of the darkening economic landscape, ongoing political uncertainty will keep even more pressure on Sterling.

Continuing oil price dynamics will keep ‘Loonie’ investors on their toes. Any drop in global market moods could see the black gold slide, and the Canadian Dollar with it.

Danny Tingle

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