Pound Canadian Dollar (GBP/CAD) Exchange Rate Plummets as UK Service PMI Reports Shock Contraction

Pound Canadian Dollar Exchange Rate Falls as Investor Digest UK Service Sector Contraction

The Pound Canadian Dollar (GBP/CAD) exchange rate is weakening this morning. After the UK’s service sector reported its first contraction since February 2021.

At the time of writing the GBP/CAD exchange rate is trading around CA$1.15025, which has roughly dropped 0.9% from this morning’s opening rate.

Pound (GBP) Volatile as UK Service Industry Contracts

The Pound (GBP) weakened against most of its peers this morning as GBP investors were unsettled by a surprise contraction within the UK service sector.

The service sector PMI was expected to print at 50 in September. However, investors were shocked to see this month’s preliminary index slump to just 49.2 to report the sector’s first contraction since February 2021.

The underwhelming data supports the Bank of England’s (BoE) warning that the UK is already in a recession.

Chief business economist at S&P Global Market Intelligence, Chris Williamson, comments:

‘UK economic woes deepened in September as falling business activity indicates that the economy is likely in recession.

‘Companies report that the rising cost of living, linked to the energy crisis, and growing concerns about the outlook are subduing demand and hitting output levels to an extent not seen since 2009, barring the pandemic lockdowns and initial 2016 Brexit referendum shock.’

Also piling pressure on to the Pound today is the release of Chancellor Kwasi Kwarteng’s mini budget. As GBP investors fear the plan will lead to a massive increase in government borrowing.

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, commented:

‘There are signs that [markets] are becoming even more nervous about the government’s ‘splash the cash’ policies, given the mounting debt pile.’

Canadian Dollar (CAD) Capped as Oil Prices Drop

The Canadian Dollar (CAD) gains are being tempered this morning as crude oil prices fall.

WTI crude oil costs around $81 per barrel this morning as the commodities value continues to slip amid economic concerns.

The recent trend of central banks aggressively hike interest rates has increased fears of slowing economic growth and a potential global recession, which is weakening the crude oil’s value as demand eases.

Fears surrounding recent comments from Vladimir Putin may also be denting oil prices. The potential mobilisation of Russia troops will likely disrupt Canadian oil supply.

Pound Canadian Exchange Rate Forecast: Slump in Canadian Retail Sales to Drag on the ‘Loonie’?

The GBP/CAD exchange rate could regain some ground later this afternoon if Canada’s retail data prints as forecast.

July’s figures are expected to report sales growth plunged from 1.1% to -2%, which could potentially weaken the appeal of the ‘Loonie’.

In the absence of any significant UK data for the rest of the day GBP investors will continue to focus on developments pertaining to today’s mini budget, which could inject further volatility into the Pound.

Lauren Coulson

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