GBP/CAD is bullish on Tuesday, though the pair might end the session in either direction. Currently, one British pound buys 1.7620 Canadian dollars, up 0.21% as of 11:25. However, in the morning, the pair touched a daily low at 1.7402.
The volatility intensified as the UK Office for National Statistics (ONS) published GDP data in the morning. The zero growth in the last quarter of 2019 pictured a weak economy that couldn’t leverage Prime Minister Boris Johnson’s victory in the December election. However, the flat reading was in line with analysts’ expectations.
The Worst Is Yet to Come
The most challenging period for the economy is about to show up as a result of the COVID-19 pandemic. Economists anticipate a steep contraction in GDP growth in the following months. Ruth Gregory, an economist at Capital Economics, commented:
“Overall, we think the coronavirus will deliver a hit to economic activity well in excess of the 6% fall in the financial crisis and the 8% drop in the Great Depression. And while we assume that GDP will recover fairly quickly in the second half of 2020, it may be a few years before the economy reaches the level it would have done had the coronavirus shock not happened.”
Despite the gloomy outlook, the sterling has managed to recover the morning losses, as investors have already priced in the upcoming nightmare. Besides this, the Canadian economy is not immune from the same recession caused by the pandemic and tumbling oil prices.
The ONS also said that the UK had narrowed its current account deficit in the fourth quarter of last year, the improvement was mostly caused by gold trade. The balance of payments deficit was 5.6 billion pounds in the three months to December, down from about 20 billion pounds in the previous quarter.
It was the smallest current account deficit since 2011. Analysts expected a figure at about 7.0 billion.
Besides the coronavirus challenge, the UK should handle the Brexit transition process, though the pandemic has stopped negotiations. A group of European Parliament’s MEPs urged Johnson to delay his Brexit deadline.