Oil Price Rebound Weighs on Pound Sterling to Canadian Dollar (GBP/CAD) Exchange Rate
UPDATE: The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate extended its slide on Wednesday afternoon thanks to a sharp uptick in oil prices.
Brent crude prices rebounded sharply on the day to break back above US$77 per barrel, benefitting from the general improvement in market sentiment.
With the US Dollar (USD) slumping on the back of underwhelming domestic data there was little to prevent the GBP/CAD exchange rate tumbling.
Pound Sterling to Canadian Dollar (GBP/CAD) Exchange Rate Loses Almost 1% as BOC Holds Interest Rates at 1.25%
EARLIER: There was little surprise as the Bank of Canada (BOC) voted to leave interest rates on hold, keeping the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate under pressure.
As policymakers maintained a cautiously optimistic stance this encouraged the Canadian Dollar (CAD) to trend higher against many of the majors on Wednesday.
While the odds of the BOC raising interest rates in the near future still look slim this was not enough to prevent CAD exchange rates rallying in the wake of the meeting.
A general easing in market risk aversion and a weaker US Dollar (USD) also helped to shore up demand for the Canadian Dollar, with CAD investors taking advantage of underwhelming US growth data.
Falling UK Shop Prices Weigh on GBP/CAD Exchange Rate
The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate found little support on the back of the British Retail Consortium (BRC) shop prices index, meanwhile.
Markets were disappointed to find that shop prices had continued to contract sharply in May, with prices showing their largest fall since January 2017.
This does not bode well for the inflationary outlook, undermining demand for Pound Sterling (GBP) as weaker shop prices are likely to lead inflation lower in the months ahead.
With price pressures weakening the case for the Bank of England (BoE) to raise interest rates sooner rather than later took a fresh blow.
Policymakers are likely to maintain a more dovish stance on monetary policy in response to easing inflation, with the consumer price index looking set to fall back towards the 2% target.
Further Pressure Forecast for GBP/CAD Exchange Rate on Canadian GDP Data
Further volatility is likely in store for the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate with the release of the latest Canadian gross domestic product data.
If the Canadian economy demonstrates evidence of accelerating growth this could offer the Canadian Dollar (CAD) a fresh rallying point on Thursday.
Another strong showing here could give the BOC further incentive to return to a monetary tightening bias before the end of the year, to the benefit of CAD exchange rates.
Some downside disappointment, on the other hand, would leave the Canadian Dollar vulnerable to profit taking and any deterioration in wider market sentiment.
Friday’s US payrolls data could also weigh on CAD exchange rates if the labour market continues to tighten and boosts the odds of aggressive Federal Reserve policy tightening.
Stronger UK PMIs Could Boost Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate
May’s round of UK PMIs may offer support to the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate, providing growth shows signs of improvement.
As forecasts point towards a slight slowing in Friday’s manufacturing PMI the Pound (GBP) may struggle to pick up any steam ahead of the weekend.
However, the main focus for investors will fall on the services PMI, given that the sector accounts for more than three quarters of UK economic activity.
Even if both the manufacturing and construction sectors disappoint, a stronger showing from the services PMI could see Pound Sterling trending sharply higher next week.
If, however, the economy fails to show any signs of recovering momentum in the second quarter, the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate is likely to remain on a downtrend.