Update: Pound to Canadian Dollar Exchange Rate Fails to Sustain Gains as Investors Focus on Upcoming Data Reports
After a brief recovery attempt on Tuesday morning, the Pound to Canadian Dollar (GBP/CAD) exchange rate trended nearer its worst levels since January again in the afternoon.
While the Bank of England (BoE) did indicate that there could be multiple UK interest rate hikes over the coming years, this would depend heavily on Britain’s economic outlook.
With multiple notable UK ecostats due for publication before the end of this week, investors opted to wait for the data rather than buying the Pound (GBP) now.
Despite a lack of supportive Canadian data in recent sessions, the Canadian Dollar (CAD) has seen solid demand from investors due to higher risk-sentiment in markets this week.
Bank of England Speculation Back in Focus for Pound to Canadian Dollar Exchange Rate Investors
Surprisingly hawkish comments from the Bank of England (BoE) regarding Britain’s monetary policy outlook are helping the Pound to Canadian Dollar (GBP/CAD) exchange rate recover slightly today, following a tumble yesterday.
After relatively narrow movement in the interbank region of 1.73 last week, GBP/CAD tumbled to a low of 1.71 on Monday. This was the pair’s lowest level since January. On Tuesday morning, GBP/CAD was putting in a recovery attempt.
Comments suggesting that the Bank of England (BoE) could hike UK interest rates up to six times over the next three years helped the embattled Pound (GBP) to recover slightly against the Canadian Dollar (CAD).
It followed Monday’s session, where perceived confidence that the US and China would see increasingly productive trade talks helped to douse trade war fears and make risky trade-correlated currencies like the Canadian Dollar more appealing.
Pound (GBP) Exchange Rates Rebound from Lows on Bank of England’s Tone
This morning, several high-ranking officials from the Bank of England (BoE) testified to UK MPs about the state of Britain’s economy and monetary policy.
BoE Governor Mark Carney was among the panel, while Deputy Governor Dave Ramsden, as well as policymakers Gertjan Vlieghe and Michael Saunders were also questioned.
While the bank remained cautious about Britain’s economic outlook, Vlieghe lit a fire under the Pound by suggesting that BoE interest rate hike bets could still rise as many as six times over the next three years.
He argued:
‘My current forecast for growth and inflation is consistent with a gradually rising path of interest rates. My own central projection will require one or two quarter point rate increases per year over the three-year forecast period.’
While uncertainty remained as to whether there could still be two rate hikes in 2018, the bank expressed confidence that the slowdown in Britain’s economic activity in Q1 was more temporary and largely caused by bad weather.
Still, the bank was becoming more certain that Britain’s economy was now seeing more evidence that the Brexit vote was having a dampening effect on growth.
Canadian Dollar (CAD) Exchange Rate Benefits Heavily from US-China Trade Truce
Fresh optimism surrounding trade negotiations between the US and China gave risky trade-correlated currencies like the Canadian Dollar (CAD) a notable boost when markets opened this week.
The first round of US-China trade talks concluded over the weekend, with both sides appearing optimistic that things were going well.
In response to the optimism surrounding the talks, the US government put its trade tariff plans on hold. This caused trade jitters to soften significantly and investors were a lot less hesitant to buy risky currencies.
Continuing signs from US and Canada negotiations indicating that both sides are determined to complete North American Free Trade Agreement (NAFTA) renegotiations also supported Canadian Dollar trade.
Still, amid a lack of particularly supportive domestic data the Canadian Dollar’s gains were limited.
Pound to Canadian Dollar (GBP/CAD) Forecast: BoE Speculation Puts UK Data in Focus
As Bank of England (BoE) officials have indicated that there could be multiple UK interest rate hikes over the coming years, despite a mixed UK economic outlook, investors will be looking for data to support this notion.
Several key ecostats will be published in the coming days which could notably boost Bank of England rate hike bets if they impress, particularly April’s UK inflation and retail sales results.
Britain’s April Consumer Price Index (CPI) results will be published on Wednesday. UK inflation is forecast to have improved slightly month-on-month, but the yearly core inflation rate is predicted to have slowed from 2.3% to 2.2%.
If UK inflation continues to slow, investors won’t have much reason to believe the Bank of England will hike interest rates later in the year. Stronger-than-expected inflation would bolster BoE interest rate hike bets and Pound (GBP) appeal.
Similarly, if Thursday’s UK retail sales results beat expectations investors will become more confident that the Q1 slowdown in UK consumer activity was caused by weather rather than a prolonged downturn in activity.
Of course, the Canadian Dollar (CAD) may remain appealing if global risk-sentiment and trade optimism remains strong. However, due to a lack of key Canadian ecostats this week, Sterling is more likely to drive the Pound to Canadian Dollar (GBP/CAD) exchange rate.