GBP CAD was trending around 1.6777 at the time of writing.
Bank of England Caution Sees GBP CAD Exchange Rate Lose Earlier Gains
GBP/CAD was strengthening during the first half of last week as markets eagerly awaited the results of the latest Monetary Policy Committee (MPC) meeting.
Economists were expecting a 0.25% hike to interest rates, taking them back to 0.5% after having languished at a 323-year low since shortly after the referendum.
There were also hopes that the MPC would signal the start of a tightening cycle to take monetary policy back up towards normalised levels.
However, GBP CAD exchange rates quickly slumped after the MPC announced the anticipated hike, but indicated that it was likely a one-off, with the minutes stating; ‘All members agree that any future increases in Bank Rate would be expected to be at a gradual pace and to a limited extent.’
The text of the Inflation Report provided further gloom, stating that; ‘The MPC’s projections … are conditioned on a path that implies a gradual rise in Bank Rate to 1.0% by the end of 2020.’
With markets having expected more hikes in the near-term, Sterling was clearly overvalued given that there were likely to be only two more rises over the course of the next three years.
Poor Domestic Data Leaves Canadian Dollar at Mercy of Pound Strength and Weakness
Even when advancing, the Canadian Dollar was not in the driving seat last week, instead being dragged higher or pushed lower in response to movement in the Pound.
The week started badly for the ‘Loonie’, with Tuesday’s gross domestic product figures for August showing a surprise contraction on the month and a slowdown in growth on the year.
Wednesday’s manufacturing PMI also moved in the wrong direction, weakening from 55 to 54.3.
This, combined with downbeat comments from Bank of Canada (BOC) Governor Stephen Poloz, fuelled expectations that there would be no changes to monetary policy in the near-term.
Poloz said; ‘We are at a crucial spot in the economic cycle, and significant uncertainties are clouding the way forward.’
Friday’s labour market data was more encouraging, after the net change in employment report showed a rise in new hiring from 10,000 to 35,400; over double what economists had expected.
Even more encouragingly, there was another large shift from part time work into full time employment.
Today the approach of more public appearances from Poloz this evening is keeping the Canadian Dollar soft, allowing the Pound to rise, despite weak UK retail data.
GBP CAD in for Sluggish Trade ahead of Friday’s UK Data Slew?
The coming few days are quiet in terms of UK data, until Friday when things pick up with the release of a slew of industry and trade data.
Industrial and manufacturing production, construction output and trade balance data for September will be followed by a GDP estimate for the three months to October.
Meanwhile, the rest of the week’s Canadian data concerns housing, with Wednesday’s housing starts and building permits figures followed by the new housing price index on Thursday.