Rising Hopes for May UK Interest Rate Hike Secure GBP/CAD Exchange Rate Gains
The Pound to Canadian Dollar exchange rate has continued to trade positively today, despite no additional support materialising for Sterling.
The UK currency has remained in high demand thanks to comments from Bank of England (BoE) Monetary Policy Committee (MPC) member Ian McCafferty.
Mr McCafferty has advocated a UK interest rate hike in the near-term, potentially as early as the BoE’s MPC meeting in May.
Pound traders have been waiting for a genuine return to higher UK interest rates since November 2017, when the BoE hike from 0.25% to 0.50% restored rates back to their pre-Brexit level.
Bleak Forecast for UK Economic Growth Could Leave Pound at the Mercy of the Canadian Dollar
The Pound has made a small advance against the Canadian Dollar today, despite an appraisal that suggests the UK will grow at a slower pace than its G7 rivals in 2018.
A survey of 100 senior executives saw almost 75% anticipate weaker growth in the UK before 2019, compared to other G7 nations.
This follows a similar prediction made by the OECD, which has also projected slower UK economic growth in 2018 compared to all other G20 countries.
Canadian Dollar to Pound Exchange Rate Slips on Capacity Concerns
This deterioration comes in the wake of news that the Canadian unemployment rate remained at 5.8% in March.
While historically low unemployment may seem positive at first glance, it covers underlying problems related to capacity limits.
Chief Executive of Aecon Group John Beck warned that:
‘We don’t have enough capacity to do what is coming at us in Canada.’
Adding to this assessment, The Financial Post’s National Business Columnist Kevin Carmichael stated:
‘Employers have decisions to make. They can invest in order to keep up with demand, or they can turn away orders and pass up opportunities to win new markets.
The choices they make will determine whether this is as good as it gets, or whether the momentum of the past couple of years leads to a retooling that will allow for faster growth.’
The new problem presented by low unemployment means that confidence in the Canadian Dollar has fallen recently.
GBP/CAD Forecast: UK Trade and Production Figures in Focus
For the rest of the week, Pound to Canadian Dollar exchange rate movement may be prompted by the release of UK production and trade figures tomorrow, as well as in reaction to speeches from Bank of England (BoE) officials.
In the former case, the GBP/CAD exchange rate could improve if UK production stats print as forecast.
Levels of industrial, manufacturing and construction output are all forecast to improve, which could raise market optimism after last week’s disappointing PMI data.
The UK trade balance reading for February could also benefit the Pound if it shows a reduction of the current trade deficit as is projected.
Less predictably, speeches on Thursday by BoE officials Ben Broadbent and Governor Mark Carney also have the potential to benefit the Pound.
Mr Broadbent will speak in Australia while Mr Carney will make remarks in Canada; if both men hint at a May UK interest rate hike then the GBP/CAD exchange rate could spike higher.
Canadian Dollar to Pound (CAD/GBP) Exchange Rate Rests on Interest Rate Decision
On the other side of the currency pairing, the next Canadian Dollar-influencing data will be released next week, consisting of a Bank of Canada (BOC) interest rate decision, as well as retail sales and inflation rate stats.
Current estimates are for the BOC to leave interest rates on hold on 18 April, but any hints at higher rates in the months ahead could still trigger a Canadian Dollar advance.
While inflation rates for March are tipped to show a slowdown, the Canadian Dollar could still be supported by a forecast-matching rise in retail sales.