Pound Canadian Dollar (GBP/CAD) Exchange Rate Recovers as ‘Loonie’ Falters
(Updated 16:05, 09/01/2023) The Pound Canadian Dollar (GBP/CAD) exchange rate rebounded this afternoon as the Canadian Dollar (CAD) suffered from its increasingly positive correlation with the US Dollar (USD).
After an initial rally, prompted by rising oil prices, CAD exchange rates then slipped due to a drop in USD.
However, the subsequent upside in GBP/CAD was limited as the Pound (GBP) also faced headwinds. Talks between union leaders and government ministers, which aimed to avoid further strike action, ended without any notable progress.
Public sector workers across a variety of professions have gone on strike in recent months to protest pay rises that lag far behind inflation. The strikes have caused significant disruption for the UK economy, which is already in recession.
At the time of writing, GBP/CAD is trading at around CA$1.6299. This is marginally higher than the start of the European session but much higher than today’s low of CA$1.6202.
Original article continues below:
Pound Canadian Dollar (GBP/CAD) Exchange Rate Declines as Crude Rallies and UK Energy Worries Grow
The Pound Canadian Dollar (GBP/CAD) exchange rate dropped this morning, as rising oil prices support the crude-linked Canadian Dollar (CAD).
At the time of writing, GBP/CAD is trading at around CA$1.6241, having fallen around 0.3% from the start of today’s European session.
Canadian Dollar (CAD) Strengthens amid Oil Market Rally
The Canadian Dollar is finding some strength today as China’s border reopening has boosted the demand for oil.
As part of Beijing’s unwinding of zero-Covid policy measures, China has now reopened its borders to tourists after almost three years of strict travel restrictions.
Analysts expect this to drive a sharp increase in energy demand, which has subsequently triggered a rally in oil prices. WTI crude is currently trading at $76.44 a barrel, an increase of almost 3.6% on the day. This, in turn, is boosting demand for the oil-linked ‘Loonie’.
However, muted Canadian government bond yields may be limiting CAD’s gains.
Pound (GBP) Slips as Firms Brace for Reduced Energy Support
Meanwhile, the Pound (GBP) is struggling for support today, with GBP investors still concerned about the UK’s economic outlook.
Chancellor Jeremy Hunt is today expected to announce a sharp cut in energy cost support for businesses from April onwards. The expensive government scheme has helped struggling UK firms weather surging energy costs. However, with the Treasury trying to balance the books, the government will now scale down the massive support package.
Make UK, the manufacturing trade body, has said that two-thirds of UK manufacturers fear blackouts this winter.
Firms also said that they may need to cut jobs and production due to unaffordable energy costs, which would be another blow to the UK’s already struggling economy.
Commenting on the news when it was signalled last week, Shevaun Haviland, Director General of the British Chambers of Commerce (BCC), said:
‘More than a third of firms have told us they are finding it difficult to pay their energy bills even when they are in receipt of government support.
‘Any continued help is welcome, but it is now clear the new plan will be at a lower level than the existing one. That’s unsurprising, given the state of public finances, but this will still have a significant impact on many businesses.’
GBP/CAD Exchange Rate Forecast: Sterling to Remain Subdued?
Looking ahead, movements in the oil market could continue to drive the Canadian Dollar through today’s session. If crude can sustain its upside, CAD could make further gains against GBP. However, if the oil rally peters out, the ‘Loonie’ may lose momentum.
As for the Pound, GBP investors may stay focused on domestic UK news amid a lack of economic data. Government ministers are meeting with union leaders today in an attempt to stave off further strikes. However, analysts are sceptical that any progress will be made as the government has steadfastly refused to renegotiate public sector pay rises.
A surprise breakthrough may boost Sterling. However, with a resolution looking unlikely, GBP/CAD could continue to fall.