Foreign Currency Market Update – GBP / CAD Update
Although the Pound spent much of last week trading bearishly against its major currency counterparts, the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate fluctuated between lows of 1.9491 and six-year highs of 1.9813.
Sterling came under pressure as mixed UK data, an uneventful Bank of England (BoE) interest rate decision and concerns relating to the impact of a ‘Grexit’ on the UK economy caused investors to pare their expectations regarding UK interest rate revisions.
However, the situation in Greece and a crashing of the Chinese stock market drove oil prices and demand for higher-risk currencies lower and the Pound was able to take advantage of a faltering Canadian Dollar. Although a slightly smaller-than-forecast decline in Canadian employment gave the ‘Loonie’ a modest boost on Friday, speculation surrounding the prospect of another interest rate revision from the Bank of Canada (BOC) stymied gains.
The Canadian economy had been forecast to shed 10,000 positions in June, which would have resulted in the unemployment rate rising from 6.8% to 6.9%, but the data actually revealed a -6,400 fall in jobs and a steady jobless rate. In the view of industry experts, while this result may have beaten expectations, it wasn’t strong enough to counter the impact of the less-than-impressive Canadian growth data published earlier this year.
The BOC had been hoping that growth would rebound in the second quarter after 2014’s dramatic slump in oil prices took a heavy toll on the pace of first quarter output, but so far that’s proved not to be the case. April saw the domestic economy contract for a fourth consecutive month, raising the possibility of Canada entering recession for the first time since 2009. Some analysts are expecting the central bank to cut borrowing costs to a fresh low in an attempt to bolster growth over the coming months, with the revision potentially taking place at this week’s policy meeting.
On Monday the Pound Sterling to Canadian Dollar (GBP/CAD) currency pair fell by over 0.7%, briefly striking a low of 1.9819. If tomorrow’s UK inflation data defies forecasts for stagnant consumer prices in June and shows an uptick, the GBP/CAD exchange rate has the potential to strike fresh highs. Wednesday’s UK employment figures could be similarly supportive if they show either a decline in joblessness or increase in average earnings.
In terms of Canadian data, the reports most likely to impact Pound Sterling to Canadian Dollar trading include Wednesday’s Manufacturing Shipments and Existing Home Sales numbers and Friday’s domestic inflation data, though the BOC announcement is likely to be the biggest driver of ‘Loonie’ movement. That being said, investors with an interest in higher-risk assets will also be taking an interest in news from China and any Greek developments.
On Tuesday the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate was trending in the region of 1.9764.
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