Foreign Currency Market Update – GBP / CAD Update
After a tumultuous week in the currency market, the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate registered a six cent five-day gain, with the pairing advancing from a low of 1.9807 to an over six-year high of 2.0318.
Although separate reports released at the beginning of last week showed that the annual rate of UK inflation eased back to 0.0% in June while the unemployment rate advanced from 5.5% to 5.6%, the Pound surged across the board as investors priced in an earlier-than-anticipated adjustment in borrowing costs from the Bank of England (BOE). Interest rate hike expectations received a major shot in the arm after BoE Governor Mark Carney issued his first rate-related comments since May. Carney indicated that the central bank wouldn’t be waiting for the Fed to alter borrowing costs first and implied that rates might be adjusted around the ‘turn of the year’ as long as UK data continues to indicate that the nation is expanding at a solid pace. His remarks were seconded by David Miles, a BoE policymaker known for his usually dovish stance.
The Pound advanced to an almost six-year high against the ‘Loonie’ as the prospect of a 2015 BoE policy adjustment lent the British asset support. Sterling also achieved a seven-year high against the Euro, five-and-a-half year high against the New Zealand Dollar and six-and-a-half-year high against the Australian Dollar.
The GBP/CAD exchange rate then proceeded to surge to its best rate for over six years as the Bank of Canada (BOC) delivered its interest rate announcement. Canada’s economy has posted four consecutive months of contraction so far this year and many industry experts are envisaging the nation entering recession for the first time since 2009. In an attempt to bring Canada out of its economic slump the BOC opted to slash borrowing costs from 0.75% to 0.5% – making its benchmark interest rate on a par with the UK’s. The decision, although expected to a certain extent, inspired a wide-spread Canadian Dollar selloff and pairings like GBP/CAD and USD/CAD rallied.
Although a lack of notable data for either the UK or Canada and a spate of profit-taking pushed the Pound Sterling to Canadian Dollar exchange rate away from recent highs at the beginning of this week, Wednesday’s BoE policy meeting minutes have the potential to drive the GBP/CAD pairing to new highs.
Should the minutes reveal that the nine-member monetary policy committee was divided on the subject of when to increase interest rates; the Pound’s bullish run is likely to continue. Other reports expected to impact GBP/CAD trading this week include retail sales figures for both the UK and Canada. UK retail sales are forecast to have risen by 0.4% on the month, taking the annual figure from 4.4% to 5.1% in June. An increase in Canadian consumer spending has also been projected, with a 0.6% advance in general sales and a 0.8% rise in sales excluding autos predicted by economists.
On Tuesday the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate was trending in the region of 2.0203
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