Unexpectedly Divided BoE Drives Pound Canadian Dollar (GBP/CAD) Exchange Rate Drop
A surprise split in the Bank of England’s (BoE) interest rate decision put the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate under renewed pressure.
As two policymakers voted to cut interest rates to 0.50% the odds of the BoE remaining on hold for the foreseeable future dropped sharply, pulling Pound Sterling (GBP) down with them.
Investors were particularly discouraged by a dovish shift in the BoE’s accompanying meeting minutes, which noted that:
‘If global growth failed to stabilise or if Brexit uncertainties remained entrenched, monetary policy might need to reinforce the expected recovery in UK GDP growth and inflation.’
Coupled with the Bank’s decision to downgrade its growth forecasts this painted a distinctly dovish picture for markets, suggesting that an interest rate cut could be on the cards in 2020.
Loosening Labour Market May Fuel Canadian Dollar Sell-off
Even so, the GBP/CAD exchange rate could find some support ahead of the weekend if October’s raft of Canadian labour market data fails to encourage investors.
Although no change is expected from the headline unemployment rate the underlying details of the report may still prove negative.
With forecasts pointing towards an employment uptick of just 15,900 this could stoke speculation that the Canadian labour market is running out of slack.
Any deterioration in the average hourly wages figure could also put pressure on the Canadian Dollar (CAD), with weaker wage growth likely to dent the Bank of Canada’s (BOC) confidence.
Soft UK Growth Set to Keep GBP/CAD Exchange Rate on Back Foot
Further weakness may be in store for the Pound on Monday, meanwhile, with the release of the latest set of UK gross domestic product data.
After the disappointing -0.1% contraction seen in August investors are hoping to see a moderate rebound in growth momentum on the month.
However, if the third quarter GDP reading continues to underperform the UK’s long-term growth average this could expose the GBP/CAD exchange rate to fresh selling pressure.
Even though the UK is not expected to fall into a state of technical recession at this stage the prospect of a sustained growth slowdown would still weigh heavily on demand for the Pound.
Lacklustre industrial and manufacturing production figures may also put a dampener on GBP exchange rates.
Diminished Hopes of Imminent US-China Trade Deal May Drag Down Canadian Dollar
The mood towards the Canadian Dollar may weaken in the near term, however, if market risk appetite shows signs of faltering.
Although there have been positive signs of progress towards a preliminary US-China trade deal a number of hurdles remain before the two sides can reach an agreement.
Oil prices could come under renewed pressure if global demand appears on track to weaken further, exacerbating the potential for a fresh oversupply glut.
This could leave the commodity-correlated Canadian Dollar on a weaker footing against its rivals, especially in the absence of any fresh domestic data releases.