Pound to Canadian Dollar Exchange Rate Forecast: GBP/CAD to Fall if Bank of Canada is Hawkish

Update: Pound to Canadian Dollar Exchange Rate Slips from Weekly Highs on UK Wage Uncertainties

Tuesday morning saw the publication of Britain’s February job market results, which were mixed and dragged slightly on the strength of the Pound to Canadian Dollar (GBP/CAD) exchange rate.

Britain’s job stats were generally optimistic, with the employment change and unemployment rate prints beating expectations.

However, UK wages did not rise as much as expected including bonuses, causing concerns that wage growth was being caused more by lower inflation than a strong labour market.

GBP/CAD has the potential to fall even further from Tuesday’s weekly interbank high of 1.80 if the Bank of Canada (BOC) takes a more optimistic tone on Canada’s economic outlook during its policy decision tomorrow afternoon.

Pound to Canadian Dollar Exchange Rate Climbs despite UK Syria Bombing

News that the UK was involved in a military strike on Syria did little to weaken the Pound to Canadian Dollar exchange rate when markets opened this week. In fact, GBP/CAD has been rising.

Last week saw GBP/CAD slip from the interbank level of 1.80 to 1.79, shedding about half a cent throughout the week. In the middle of the week, GBP/CAD touched on a monthly low of 1.78.

This week so far though, GBP/CAD has recovered last week’s losses. Sterling’s strength has been largely due to expectations that the Bank of England (BoE) will hike UK interest rates in May.

As a result, geopolitical concerns have not weakened the pound as investors are focusing on upcoming UK ecostats instead. This week’s UK data is being perceived as the final obstacle for BoE interest rate hike bets.

Pound (GBP) Exchange Rates Firm on Bank of England (BoE) Rate Hike Expectations

Bets that the Bank of England (BoE) will hike interest rates in May are now largely priced in, and this is helping the Pound to hold its ground despite geopolitical jitters.

Sterling did not appear to be impacted following Britain’s joint missile strike, with the US and France, on alleged chemical weapons facilities in Syria, and in fact advanced on Monday morning against rivals including the Canadian Dollar (CAD).

According to Jane Foley, currency strategist from Rabobank:

‘The Pound is looking pretty good, but it has to get through the UK earnings and CPI data in the coming sessions. These are perhaps the most important numbers in the month right now, given the forthcoming Bank of England meeting.’

Canadian Dollar (CAD) Exchange Rates Limited by Low Market Risk-Sentiment

Despite lessening market anxiety about geopolitical tensions between the US and Syria, as well as hopes that the US would negotiate through trade issues rather than take an increasingly protectionist stance, Canadian Dollar (CAD) exchange rates were weaker on Monday.

The weekend’s strikes against Syria still made risky trade-correlated currencies like the Canadian Dollar less appealing, with the currency also recently falling from highs.

The Canadian Dollar saw almost a month of gains due to expectations that the North American Free Trade Agreement (NAFTA) would be successfully renegotiated, taking GBP/CAD to a monthly low last week.

Investors have been selling the Canadian Dollar from its highs in profit-taking moves while risk-sentiment is lower.

Analyst speculation that the Syria situation will calm down rather than escalate has also caused predictions that the price of oil, Canada’s most lucrative commodity, could also fall from its highs soon.

Pound to Canadian Dollar (GBP/CAD) Forecast: Final Roadbump before BoE Bets are Priced In?

This week’s UK data has the potential to be hugely influential to the Pound to Canadian Dollar (GBP/CAD) exchange rate – if it falls short of market expectations.

The Bank of England (BoE) has played up the importance of UK wage growth compared to inflation with regards to its monetary policy decisions.

As a result, Tuesday’s UK jobs market results from February including wage growth, and Wednesday’s UK Consumer Price Index (CPI) results from March could dampen BoE rate hike bets if they come in much lower than forecast.

UK wages are forecast to have risen from 2.8% to 3%, including bonuses, in February but if it comes in lower investors may become less confident that the BoE will hike interest rates in May.

In the event of disappointing UK data, the Pound (GBP) could fall as investors anticipate further signals from Bank of England officials on whether or not a May rate hike is still likely.

Wednesday will be highly influential for the Canadian Dollar (CAD) too, as the Bank of Canada (BOC) will hold its April policy decision meeting.

If the bank takes a more hawkish outlook on Canada’s economy or expresses confidence in Canadian trade with regards to NAFTA renegotiations, the Canadian Dollar could see stronger demand later in the week, which may keep pressure on GBP/CAD.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard