Pound Canadian Dollar (GBP/CAD) Exchange Rate Slumped to 12-Year Low on UK Debt Market Concerns

Pound Canadian Dollar (GBP/CAD) Exchange Rate Dropped ahead of PM’s Cost-of-Living Crisis Package

The Pound Canadian Dollar (GBP/CAD) exchange rate fell as investors become more concerned over the funding of Prime Minister Liz Truss’ energy relief package.

At time of writing, the GBP/CAD exchange rate is around CA$1.5097, a 0.20% fall from this morning’s opening levels.

Pound (GBP) Pressured by Mounting Debt Concerns

The Pound (GBP) slipped to a 12-year low against the Canadian Dollar and plummeted to the lowest level since 1985 against the US Dollar. Mounting fears of £30bn tax cuts and almost £100bn in energy bill relief, investors are concerned of the medium to long-term inflationary impacts.

Concerns over the huge fiscal aid plan has helped push UK borrowing costs to a 10-year high with interest rates on 10-year gilts rose to over 3%. However, Capital Economics have predicted that significant fiscal stimulus could dramatically reduce the short-term inflation, and a less severe recession. They said:

‘Rather than rise from 10.1% in July to around 14.5% in January, it may mean that inflation peaks around 11.5% in November and falls faster next year. The smaller drag on real incomes means that the recession may be shallower too, perhaps with a peak to trough fall in GDP of around 0.5% rather than 1.0%.’

Meanwhile, providing another headwind for the Pound is the cautious tone struck by BoE policymakers regarding the UK’s economic and policy outlook. BoE policymakers, including Governor Andrew Bailey, turned dovish and failed to inspire much confidence in investors. Bets have pared over a more aggressive rate hike at the next policy meeting. Concerns over Truss’ economic policies are weighing on the BoE.

Canadian Dollar (CAD) Wavers on Slumping Oil Despite 75bps Rate Hike

The Canadian Dollar (CAD) is fluctuating today after the Bank of Canada (BoC) raised interest rates for the fifth consecutive month, up to 3.25%. Following from the central bank’s 100bps bold hike from last month, a 75bps hike sent borrowing costs to the highest in 14 years.

However, dragging the commodity-linked ‘Loonie’ down is the plummeting price of oil. WTI crude slipped to the lowest level since January 2021. But with the ongoing standoff between Russia and Europe over energy supplies could revive demand, and in turn, the Canadian Dollar. Gazprom have already halted the Nord Stream 1 pipeline, which has cut off a substantial supply of gas to Europe.

Pound Dollar Exchange Rate Forecast: UK Fiscal Stimulus Package Details to Boost Sterling?

Looking ahead, newly-appointed Prime Minister Liz Truss is set to announce the much-needed fiscal aid plan. As one of her first moves as prime minister, allaying the energy bill crisis could boost the UK economy, and the Pound.

Meanwhile, Friday sees the release of Chinese inflation data and the unemployment rate in Canada, both of which could inspire movement in the ‘Loonie’.

Danny Tingle

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