The Pound to Canadian Dollar exchange rate tumbled on Monday on rising bets that the Bank of Canada (BOC) plans to increase interest rates in the near future. Sterling also struggled to hold its ground due to disappointing June PMIs. GBP/CAD has slumped from the week’s opening level of 1.6887 to hit lows of 1.6790.
Sterling Struggles Amid Lack of Supportive Data
After enjoying a little rally against several of the majors as June came to a close the Pound has been unable to hold its ground this week and has fallen against a strong Canadian Dollar due to a lack of supportive domestic ecostats.
So far this week’s UK data has reflected concerns that Britain’s economy is struggling under the weight of uncertainty surrounding the UK’s Brexit negotiations and the political landscape.
So far, Markit has published its June manufacturing PMI and its construction PMI. The manufacturing print was projected to come in at 56.5, but instead dropped from 56.3 to 54.3.
The construction results were similar, falling from 56 to 54.8 and missing the forecast 55.
These results have led to anxiety that Wednesday’s UK services stats will also disappoint, reducing demand for the Pound.
Canadian Dollar Strengthens on Bank of Canada Hopes
Speculation is rampant this week that the Bank of Canada (BOC) could be preparing to hike interest rates for the first time in seven years.
In recent weeks, BOC Governor Stephen Poloz has stepped up his hawkish tone, insinuating that the rate cuts introduced in 2015 had done their job.
This week, Poloz has continued to indicate that monetary policy should normalise as inflation rises.
In an interview with German newspaper Handelsblatt, Poloz argued that by the beginning of 2018 inflation was likely to be comfortably rising. He indicated that the bank needed to act on monetary policy before inflation gets too high and overshoots the bank’s targets.
Poloz also noted that recent weakness in oil prices, which has seen the commodity fall to between US$40-50 per barrel, was not currently a big issue for the bank.
Last week’s solid Canadian growth stats and Poloz’s hawkishness have kept the Canadian Dollar buoyant.
GBP/CAD Forecast: UK Services Stats Ahead
Wednesday will see the publication of Markit’s UK services and composite PMIs for June.
As services account for a notable chunk of Britain’s economic activity, it will give investors a better idea of how Britain’s economy is handling the household pay squeeze and the latest political uncertainties.
If services fall short of expectations, concerns will increase that rising inflation and slowing wages are having a negative impact on Britain’s economy.
However, better-than-expected services data would be a testament to the British economy’s resilience and could support both Bank of England (BoE) tightening bets and the Pound.
Still, regardless of BoE bets the Canadian Dollar is likely to hold firm until the BOC meeting next week.
Canadian trade data and employment stats will be published later in the week, but unless they’re highly disappointing investors will continue to entertain the possibility that borrowing costs are about to climb.