The pound to Canadian dollar has experienced some intense volatility owing to the Coronavirus, as we have seen the rate fluctuating quite sharply and suddenly, ranging from 1.6585 to 1.7997 on the interbank rate in the last month. This excessive volatility of 14 cents is the result of fears and concerns relating to the COVID-19 virus and the potential influence on the global economy ahead. The Canadian dollar had initially lost ground as investor’s worries over the price of oil had been a key feature on the behaviour of the currency at the beginning of March. Since then, the weakness seen by the pound, and renewed confidence over the strength of the US Dollar in a crisis, the currency of Canada’s largest trading partner, has caused the Loonie dollar to rise to a 5-month high against the pound.
Both currencies remain at risk from developments of the virus, as investors try to second guess where events will turn next. Expectations for the UK in the future centre around the economy, and the recent moves by government to limit social gatherings in the future. Bars, cafés and restaurants have all been closed in an effort to fight off the virus, and limit the spreading. This is causing and will cause an economic knock-on effect, as people and business stay home and avoid spending money.
For Canada, the death toll has risen to 19 with 1300 reported cases, whilst for the UK the death toll has risen to 281. The pandemic is predicted to get worse before it gets better, part of the movement in the currency market has come as a result of the monetary policy changes enacted by the central banks. The UK has increased its Quantitative Easing measures to £200bn / month and cut interest rates to 0.1%, whilst for Canada, we have seen interest rates cut to 0.75%. Both of these cuts were emergency cuts, outside of the usual interest rate meeting cycle highlighting the scale and severity of the current situation.
GBPCAD has seen some increased volatility and there are a number of new economic releases ahead this week which might be of interest, including the scheduled UK Bank of England interest rate decision on Thursday. We are also seeing daily briefings from both the UK and US Government over plans. Some of the movements in the currency market can also be attributed to the US dollar, the world’s most traded currency, so updates from the US are also important. The US dollar and Canadian dollar also share some proximities both geographically and economically, with the US dollar having risen to a 35-year high against the pound, it is not wholly suprising to see the Canadian dollar rising too against sterling.
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