Despite market optimism about Canada’s economy, the Pound to Canadian Dollar exchange rate surged last week in reaction to some surprisingly hawkish comments from the Bank of England (BoE).
The pair advanced from 1.6042 to around 1.6565 last week. The pair trended closely below that level at the time of writing.
Pound (GBP) Sold from Best Levels on BoE Optimism
The Pound slipped in Monday trade, as investors sold the British currency following days of strong surges.
Last week, the Bank of England (BoE) held its September policy decision. The bank’s decision was largely unsurprising, leaving monetary policy frozen near its loosest levels on record.
The latest meeting minutes indicated that, if Britain’s economy continues to grow close to its current pace, the bank may need to alter its monetary policy balancing act.
Later comments from BoE Governor Mark Carney and policymaker Gertjan Vlieghe were even more hawkish.
Carney noted that most members of the Monetary Policy Committee (MPC) agreed that adjustments could be made in the coming months.
This was the biggest reason for the GBP/CAD surge in recent sessions. However, as Brexit uncertainties and concerns about Britain’s wage growth remain, the British currency remains volatile.
Canadian Dollar (CAD) Limp as Bullishness Cools
At the beginning of September, the Bank of Canada (BOC) surprisingly hiked Canadian interest rates for the second time in three months.
The move had not been signalled and was highly unexpected to both analysts and markets. The Canadian Dollar rocketed higher following the news.
However, last week’s Bank of England (BoE) news was even more influential, boosting GBP/CAD to near its best levels in over a month.
On top of this, demand for the risk-correlated Canadian Dollar was weakened by stronger demand for the US Dollar (USD) and higher Federal Reserve interest rate hike bets.
Recent Canadian data has been relatively low influence too, meaning investors have had no fresh reason to buy up the ‘Loonie’ in recent sessions.
GBP/CAD Forecast: Could Canadian Dollar Recover?
The Canadian Dollar may become strong enough to push GBP/CAD lower in the coming days, depending on the results of Canada’s upcoming inflation results.
Canadian Dollar demand could be influenced slightly by Canada’s manufacturing and wholesale sales reports, but traders are more likely to anticipate highly influential Canadian data due on Friday.
Canada’s July retail sales and August Consumer Price Index (CPI) results could influence the ‘Loonie’ outlook, particularly the inflation report.
If Canadian inflation impresses, the Canadian Dollar is likely to see stronger performance as markets become more confident in the Bank of Canada’s (BOC) monetary policy decisions.
As for Sterling, the British currency could continue to slip from its highs as investors become anxious about an upcoming Brexit speech from UK Prime Minister Theresa May. The speech will take place on Friday.