Pound Sterling to Canadian Dollar Exchange Rate Update: GBP/CAD Gains Limited by Bank of England Comments

Pound to Canadian Dollar Exchange Rate (GBP/CAD) Outlook Dampened by Concerns of More Dovish BoE

UPDATE 14:15 BST: On Tuesday, outgoing Bank of England (BoE) policy hawk Ian McCafferty held a speech alongside his successor, Jonathan Haskel.

As Haskel expressed concerns about the Brexit process and noted that Britain’s economy may not be as strong as expected, he was perceived as dovish.

Signs that the hawkish McCafferty was being succeeded by someone of a less hawkish nature caused the Pound to Canadian Dollar (GBP/CAD) exchange rate to slip on Tuesday afternoon.

Pound to Canadian Dollar Exchange Rate Edges Higher as Trade War Fears Shake Markets

Despite a lack of fresh support in Pound (GBP) trade on Monday, the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate edged higher throughout the day. This was due to risk-aversion weighing heavily on the appeal of commodity-correlated currencies such the Canadian Dollar (CAD).

Last week, Bank of England (BoE) hawkishness and underwhelming Canadian data helped GBP/CAD to climb from the interbank level of C$1.75 to nearer the level of C$1.76 – though the pair was unable to hold last Friday’s monthly high of C$1.77.

This week so far, GBP/CAD has edged higher again and at the time of writing was trending above C$1.76.

Investors had little reason to buy the Pound on Monday, but it was much more appealing than the more risky Canadian Dollar.

News that some American businesses were looking to move production outside of the US in order to avoid being caught up in stricter trade tariffs imposed by the EU weighed heavily on market demand for risky currencies.

Pound (GBP) Exchange Rates Strength Limited as Investors Await Data

Sterling (GBP) saw a surge in demand last week, as more Bank of England (BoE) policymakers than expected voted to hike UK interest rates.

BoE Chief Economist Andy Haldane unexpectedly shifted to a more hawkish stance, meaning the vote to keep rates frozen was 6-3 rather than only 7-2.

Haldane and the other more hawkish policymakers argued that Britain’s economy had rebounded from the slow performance seen over the winter, and they also expressed concern about UK wage growth.

However, as recent UK data has disappointed markets, investors were hesitant to pile into the Pound too quickly.

As a result, Sterling’s gains were limited last week – even versus a weak Canadian Dollar. Pound trade has struggled to sustain big gains ahead of Friday’s UK growth data.

Canadian Dollar (CAD) Exchange Rates Unappealing as Risk-Aversion Bites

A strengthening of oil prices in recent sessions has merely limited the crude-correlated Canadian Dollar’s (CAD) losses, as other global and domestic factors have weighed heavily on the currency.

Of course, the biggest downside risk in Canadian Dollar trade lately has been market fears of a trade war breaking out, as US President Donald Trump has doubled down on protectionist rhetoric.

As Canada relies heavily on trade, concerns that the US may pull out of North American Free Trade (NAFTA) renegotiations or spark a global trade war have left the Canadian Dollar looking unappealing.

On top of this, last week’s Canadian data was very disappointing. Canadian inflation unexpectedly slowed in May, and retail sales contracted in April’s print.

Pound to Canadian Dollar (GBP/CAD) Forecast: Movement to be Limited until Friday

Unless central bank officials make surprising comments in the coming days, or there are surprising Brexit developments, the Pound to Canadian Dollar (GBP/CAD) exchange rate is likely to trend relatively tightly for a few days.

For now, investors will be keeping an eye on Wednesday’s speeches from Bank of England (BoE) Governor Mark Carney and Bank of Canada (BoC) Governor Stephen Poloz, but otherwise the economic calendar will be quiet until Friday.

The majority of this week’s most influential data will be published at the end of the week, including UK Gross Domestic Product (GDP) results from Q1, as well as Q1 business investment and May mortgage data.

If the UK growth data meets or beats forecasts, investors could become more confident in the Bank of England’s hawkish outlook. BoE interest rate bets would strengthen and so would the Pound outlook.

Canada’s latest growth data, from April, will be published during Friday’s American session. If it beats forecasts it could make Canadian Dollar trade more appealing again.

However, if global concerns about a potential trade war worsen in the coming sessions, this would make it easier for the Pound to Canadian Dollar (GBP/CAD) exchange rate to climb regardless of Canadian data.

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