The Pound Canadian Dollar (GBP/CAD) exchange rate declined last week as the UK’s economic outlook grew darker.
So far this week, GBP/CAD has struggled for a clear direction. Britain continues to face economic challenges, but declining government bond yields have put some pressure on the Canadian Dollar (CAD).
What’s Been Happening: GBP/CAD Declines as UK Outlook Darkens
After a quiet start to the week due to the New Year’s Day replacement bank holiday, the GBP/CAD pairing saw some turbulence on Tuesday. A stronger US Dollar (USD) helped lift the Canadian Dollar, due to the increasingly positive correlation between the two currencies, but a deepening contraction in Canada’s manufacturing PMI offset the upside.
Sterling then began a steady decline against the ‘Loonie’ as investors grew concerned about the UK’s economic outlook. Strike action continued to intensify, while the UK services PMI was downwardly revised to show a contraction in December.
Meanwhile, an uptick in Canadian government bond yields on Thursday lifted CAD exchange rates.
On Friday, GBP/CAD was able to recoup some losses after bouncing off a six-week low. A risk-on rally in markets supported the Pound (GBP), while Canadian bond yields slipped again following the US jobs data, thereby denting CAD.
Three Things to Watch Out for This Week
- UK GDP
On Friday the UK’s latest GDP report is forecast to show a 0.2% contraction in November. Such a result would likely weigh on the Pound.
- US Inflation
The Canadian Dollar has become increasingly correlated with Federal Reserve rate hike expectations in recent months. Therefore, an expected cooldown in US inflation on Thursday could see CAD exchange rates drop.
- Oil Prices
Movements in the oil market this week could continue to impact the commodity-linked ‘Loonie’.
GBP/CAD Forecast
The Pound Canadian Dollar exchange rate could see some volatility this week, with potentially high-impact events looking set to pull the pairing in different directions. Meanwhile, domestic headlines from the UK could continue to have a significant impact on Sterling. Will more worrying news keep the Pound subdued?