The Pound Canadian Dollar (GBP/CAD) exchange rate strengthened after oil prices plummeted amid a souring global economic outlook, despite ongoing UK domestic woes.
At time of writing the GBP/CAD exchange rate was around $1.5731, a huge 0.95% climb from the morning’s opening levels.
Canadian Dollar (CAD) Exchange Rates Tumble as Oil Price Falls to Five-month Low
The Canadian Dollar (CAD) is failing to find demand as oil prices tumbled to their lowest levels since February.
With mounting fears of a global recession, amid a darkening economic landscape, the commodity-linked ‘Loonie’ saw demand for their primary export wane drastically. Oil prices dropped sharply in the wake of weak manufacturing data from both Europe and China as demand concerns grow.
Meanwhile, further compounding the Canadian Dollar’s weakness is the troubling news out of China. The world’s second largest economy saw an unexpected downturn in its manufacturing sector. Manufacturing PMI data from Caixin show the manufacturing sector slowed to 50.4 from 51.7 the previous month. Hovering above stagnation levels, and far below market forecasts, Oanda Analyst Craig Erlam warns of the impact of China’s slowdown:
‘(China) was already facing an uphill challenge, to put it mildly, with regards to its growth target this year and the fact that manufacturing activity is slowing again doesn't bode well.’
Both WTI crude and Brent ended the month with a second straight monthly loss, the first time since the height of the pandemic in 2020. The Canadian Dollar could be under increased pressure if global demand doesn’t pick up.
Pound (GBP) Exchange Rates Rally Despite Troubling Domestic Woes
The <a href="/British-Pound-GBP-currency-table.html">Pound</a> (GBP) enjoyed considerable tailwinds against most of its rivals despite the downturn in the global market mood.
Manufacturing PMI just missing forecasts as final readings were revised to 52.1, lower than the initial 52.2. Lower-than-expected growth in the manufacturing sector saw output contracting for the first time since 2020, amid a myriad of issues including supply troubles. One upside from the data is that employment within the sector had grown the most in three months as market experts predict inflationary pressures had finally peaked.
However, consumers are still paying the price for out-of-control inflationary pressures. Troubling data reveals that one in eight UK households are concerned they will be unable to financially cope with the looming energy price hike in the autumn. Nigel Wilson, Chief Executive of Legal & General, is warning of the lasting impacts of the cost-of-living crisis:
‘However, what is most concerning is that the impact of the cost of living crisis is being felt more severely in some parts of the UK than in others. This threatens to widen the existing demographic and geographic inequalities that the levelling up agenda was designed to address.’
Another potential headwind for Sterling is the downbeat confidence of UK business leaders. Investment plans are being slashed as ongoing Brexit issues are compounded by political uncertainty and inflationary pressures. The Institute of Directors have polled UK businesses and found growing pessimism surrounding the economic outlook. Kaley Crossthwaite, partner at accountancy and business advisory firm BDO, said:
‘Inflation and rising costs have placed profound pressure on business leaders. It is particularly concerning to see businesses taking on additional loans and credit to manage costs – despite rising interest rates.’
GBP/CAD Exchange Rate Forecast: UK Political and Social Turmoil to Weigh on the Pound?
Looking ahead, the Pound Canadian Dollar Exchange rate could be left open to market sentiment as data remains thin on the ground for the rest of the session. A continuing drop in global risk appetite could see the ‘Loonie’ slip further.
Meanwhile, the Pound will have to wait until the release of the services PMI on Wednesday to see any movement that won’t be dictated by ongoing troubling domestic issues.