Pound falls on recession fears / GBP/CAD Forecast

24th August 2010
Good morning. Sterling fell to a 1 month low against the US Dollar yesterday, extending losses after a Bank of England policymaker said the UK faces the risk of sliding into recession. The pound also fell against the Euro after briefly hitting 8 week highs early in the day. Today we’ll look at what fears of recession may mean for Sterling exchange rates, and also a look at the Canadian Dollar. First the usual snapshot of rates as at 08:30am:

  • GBP/EUR 1.2190
  • GBP/USD 1.5382
  • GBP/AUD 1.7365
  • GBP/NZD 2.1887
  • GBP/CAD 1.6272
  • GBP/CHF 1.6034
  • GBP/ZAR 11.372
  • GBP/NOK 9.6761
  • GBP/JPY 130.26
  • GBP/HUF 346.22
  • EUR/USD 1.2615

Pound vs Euro

Sterling hit its highest in nearly eight weeks against the euro on Monday morning on speculation that monetary policy in the euro zone would remain more accommodative than in Britain. The news weakened the Euro, making it more expensive to purchase. Later in the day however, comments showing there are fears that the UK may slip back into recession pushed the pound lower against most currencies.

UK to slide back into recession?

In an interview with Britain’s Times newspaper, Martin Weale, the newest member of the BoE’s Monetary Policy Committee, said the central bank’s growth forecast for this year and next may be too optimistic, and that there is a good chance the UK will retract and return to recession. Indeed, GDP figures this Friday could show that the economy is not growing as forecast.

If the UK does indeed dip back into the red, then exchange rates are not likely to fare well. Contact us today to discuss the options we have available to ensure you don’t lose out should rates not move your way.

Sterling to Canadian Dollar GBP/CAD

Today as an extra insight for you, we have looked at the relevant news and happenings relating to the Canadian Dollar and of course its movements against the Pound.

To start, here is a look back at the GBP CAD cross during the last 12 months:

As you can see the CAD has had a similar journey to the USD against the Pound over the last year with both North American currencies strengthening against British currency as a general rule. Furthermore you will notice further similarities if you compare a GBP/USD graph to this as you will see a slight upturn in exchange rates as the British economy gradually exits recession over the last 4 months or so.

Indeed the North American power houses trade at near parity now and have for much of the global recession. The reason behind this similarity is of course risk aversion and a flight to safe have currencies, which regular readers of this report will know all about. Put simply the CAD has benefited from the recession because it is largely underpinned by commodities such as precious metals and Oil (of which it is a major producer) and thus during the depths of recession where investors were not interested in high risk financial investments, they and their money fled to these commodities and thus the currency of Canada.

As a note, the USD benefited in a similar way, trading heavily on its international super power position, attracting investors to a relative safe haven.

Moving forward to the current fate of the CAD, it stands at an important crossroads as July’s inflation figures prepare to hit the markets. This data will be significant in the light of the upcoming September Interest decision form the Bank of Canada, with many analysts expecting a high inflation reading to precede a rate hike. This expectation mat be cooled however if the inflation figures are not as good as expected.

As with most major currencies, the fate of the CAD is of course heavily reliant on the outlook for the global economy; the powers that be in Canada themselves have recently cut growth expectations, so there may be good opportunities for Brits looking to buy the CAD in the future, but be warned if the our economy deceives to flatter and interest rate remain on hold long term, do not expect a swift return to vastly higher exchange rates against the CAD.

If you are looking for the best exchange rates, click the link below to send us an enquiry, and have a free consultation on what’s happening in the currency markets.

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