The exchange rate of the pound and the Canadian dollar (GBP/CAD) strengthened after the fall in oil prices amid a deteriorating global economic outlook, despite continuing domestic difficulties in the United Kingdom.
At the time of writing, the GBP/CAD exchange rate is around $1.5731, a whopping 0.95% up from morning open levels.
Canadian Dollar (CAD) Exchange Rates Fall as Oil Price Falls to Five-Month Low
The Canadian dollar (CAD) finds no demand as oil prices fall to their lowest levels since February.
With growing fears of a global recession, amid a darkening economic landscape, the commodity-linked ‘Loonie’ has seen demand for its main export commodity decline drastically. Oil prices fell sharply on weak manufacturing data in Europe and China, as concerns about demand grow.
Meanwhile, the Canadian dollar’s weakness is further compounded by troubling news from China. The world’s second largest economy has experienced an unexpected slowdown in its manufacturing sector. Caixin manufacturing PMI data shows the manufacturing sector slowed to 50.4 from 51.7 the previous month. Above stagnation levels and well below market expectations, Oanda analyst Craig Erlam warns of the impact of the Chinese slowdown:
“(China) was already facing a difficult challenge, to put it mildly, in terms of its growth target this year and the fact that manufacturing activity is slowing again does not bode well.”
WTI crude and Brent crude both ended the month with a second consecutive monthly loss, the first since the peak of the pandemic in 2020. The Canadian dollar could come under increased pressure if global demand does not pick up.
British Pound (GBP) exchange rates recover despite troubling domestic issues
The British Pound (GBP) benefited from considerable tailwinds against most of its rivals despite the slowdown in global market sentiment.
The manufacturing PMI narrowly missed the forecast as the final figures were revised to 52.1, lower than the initial 52.2. Weaker-than-expected growth in the manufacturing sector saw output contract for the first time since 2020, amid myriad problems including supply issues. One benefit of the data is that employment in the sector has seen the strongest growth in three months, with market experts predicting that inflationary pressures have finally peaked.
However, consumers continue to pay the price for uncontrollable inflationary pressures. Disturbing data reveals that one in eight UK households fear they will not be able to financially cope with the impending rise in energy prices in the fall. Nigel Wilson, Managing Director of Legal & General, warns of the lasting effects of the cost of living crisis:
“However, what is most concerning is that the impact of the cost of living crisis is being felt harder in some parts of the UK than in others. This threatens to aggravate the existing demographic and geographic inequalities that the leveling up program was designed to address.
Another potential headwind for Sterling is the pessimistic confidence of British business leaders. Investment plans are shattered as lingering Brexit issues are compounded by political uncertainty and inflationary pressures. The Institute of Directors surveyed UK businesses and found growing pessimism about the economic outlook. Kaley Crossthwaite, partner at accounting and business advisory firm BDO, said:
“Inflation and rising costs have put a deep strain on business leaders. It is particularly concerning to see businesses taking out additional loans and credit to manage their costs, despite rising interest rates.
GBP/CAD exchange rate forecast: political and social unrest in the UK will weigh on the pound?
Looking ahead, the Pound and Canadian Dollar exchange rate could be left open for market sentiment as data remains thin on the ground for the rest of the session. A continued decline in global risk appetite could push the Loonie further down.
Meanwhile, the pound will have to wait for the services PMI release on Wednesday to see any movement that isn’t dictated by troubling domestic issues unfolding.