Pound sterling has been limited this week, and the market is predicting that the currency could be slow to regain the initiative over the Canadian dollar in the months to come. This forecast came after CIBC Capital Markets in Canada downgraded its predictions for the GBP/CAD exchange rate on Thursday as lingering concerns about the UK economic outlook persisted to haunt the Sterling. Meanwhile, the Canadian dollar has benefitted from an easing in market risk appetite suppression. Following optimistic news from China which saw their new cases of coronavirus drop day-on-day, the market responded positively, and the price of oil took a slight incline in price, helping out the oil-linked CAD.
GBP Might Fare Worse in the Months to Come as Economy Fears Heighten
GBP has had its recent gains limited by an unsettled feeling amongst investors concerning the UK economy in the long-term. GBP has been resilient against many of its major rival currencies this week, but it has ceded ground to the Canadian dollar whilst coming under pressure from USD and the Swiss Franc. The Canadian dollar received a boost this week from an increase in oil prices as a direct result of reduced coronavirus fears. The pound to Canadian dollar rate was down -0.55% for the week on Thursday, with the CIBC downgrading its forecasts, with eventual recovery tipped to be shallower than it once was.
Jeremy Stretch, a CIBC strategist noted that the UK’s economy narrowly avoided contraction in Q4 GDP figures in 2019, which provided relief for the pound. But with consumption experiencing its weakest quarter since 2015, the avoidance of a negative GDP reading was largely a function of an aggressive uptick in government spending.
The current issue for GBP is that when the Bank of England (BoE) decided to leave the interest rates unchanged in January, prompting markets to bid sterling higher, most were assuming that the “Boris Bounce” in the economy would materialise in the months ahead. This leaves GBP vulnerable to weak economic data in the months to come. Should the economy not live up to the investors expectations the Sterling’s strength will likely take a huge hit.
Canadian Dollar Ticks Higher on Coronavirus Fear Reduction
This week saw China announce that it is witnessing a lowering in the number of new coronavirus cases each day. This suggests that the country’s effort to reduce and control the disease appears to be working. As a result, this fuelled the fire for the price of oil to rise on an increase in market risk appetite. This has seen CAD trending higher and has allowed it to move above pound sterling in the week’s trading efforts.
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