Canada Hikes Interest Rates – Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Slumps

GBP/CAD exchange rate Slides as BoC Presses Ahead with Rate Hike despite Trade Tensions

The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate plummeted this afternoon as CAD investors welcomed the Bank of Canada’s (BoC) latest rate decision.

At the time of writing the GBP/CAD exchange rate was C$1.735 on the interbank rate.

Canadian Dollar (CAD) Exchange Rate Surges as the BoC Sticks to Hiking Path

The Canadian Dollar (CAD) exchange rate shot higher on Wednesday following the Bank of Canada’s (BoC) July policy meeting.

As had been widely forecast ahead of the meeting, the BoC voted to raise interest rates this month, its second hike of 2018, something which was expected to limit the ‘Loonie’s potential gains.

Previously, rates were 1.25%, but after the BoC hike they now stand at 1.5%.

However, much to the surprise of markets, the bank’s accompanying statement was fairly hawkish in tone, with BoC Governor Stephen Poloz apparently willing to overlook the recent rise in trade tensions in light of soaring inflation.

This saw the Canadian Dollar surge higher as the bank reiterated the need for interest rates to continue rising.

The Bank’s statement read:

‘The Governing Council expects that higher interest rates will be warranted to keep inflation near target and will continue to take a gradual approach, guided by incoming data.’

Pound Sterling (GBP) Exchange Rate Slips Ahead of Carney Speech

The Pound (GBP) meanwhile is trending lower against the Canadian Dollar (CAD) and some of its other peers such as the Euro (EUR) and US Dollar (USD) today in advance of a speech by Bank of England (BoE) Governor Mark Carney this evening.

GBP investors are looking for any indication of whether the recent political turmoil in the UK could impact the BoE’s rate decision next month.

Markets had previously placed the odds of an August rate hike at around 70%.

However in the wake of Boris Johnson’s and David Davis’ resignations at the start of the week, the outlook is looking a little murkier.

Viraj Patel, FX strategist at ING said:

‘The biggest initial risk to the Pound from a period of heightened political uncertainty is a one-off dovish BoE re-pricing in markets.’

Carney’s tone last week was fairly upbeat, so a shift towards a more cautious tone could drag on the Pound as it dampens hopes of a hike next month.

Pound Canadian Dollar (GBP/CAD) Exchange Rate Forecast: Sterling Sentiment to Be Clouded by Political Risks

Looking ahead to the remainder of the week, there will be little in the way of notable domestic data which may impact either the Pound (GBP) or Canadian Dollar (CAD).

This could leave movement in the Pound Canadian Dollar (GBP/CAD) exchange rate to be driven by potential political risks facing the UK government.

While the Prime Minister may have avoided a leadership contest following the resignation of two of her most senior cabinet members, it is clear that deep divisions remain within the ruling Conservative party, with the emergence of any further cracks in Theresa May’s leadership likely to undermine Sterling sentiment.

Meanwhile the ‘Loonie’s fortunes may be tied closely to the tone struck by Donald Trump towards trade over the coming days, with CAD investors likely to keep the current NAFTA negotiations in mind whenever Trump lashes out at his allies over trade.

Luke Trevail

Luke studied Journalism at university but quickly moved into the financial sector, initially working in retail banking before joining TorFX in 2007. As a Senior Account Manager Luke assists in overseeing the management of the company’s exposure to currency volatility. He uses his years of foreign exchange experience to produce regular news updates exploring the latest currency movements.

Contact Luke Trevail