Pound Canadian Dollar Exchange Rate Sinks, Weak UK Growth Increases BoE Rate Cut Odds

GBP/CAD Exchange Rate Falls on Bank of England Rate Cut Fears

The Pound Canadian Dollar (GBP/CAD) exchange rate fell by 0.7% today, with the pairing currently trading around CA$1.692 after the British economy shrank in November amid fears that the Bank of England (BoE) could slash interest rates in the near-term.

Mathew Cady, an Investment Strategist at Brooks Macdonald, commented:

‘UK GDP for November has come in at negative -0.3%. This is quite a bit weaker than had been expected. Consensus had been looking for zero growth month on month. Against this, both September and October were revised up by 0.2% and 0.1% points respectively.

The weaker GDP print today puts beyond doubt that the next Bank of England meeting at the end of January is going to be a ‘live’ meeting.’

Today also saw the release of the UK industrial production figure for November, which also fell below consensus from 0.4% to -1.2%. This further added to fears that the central bank could go ahead with stimulus measures to boost the flagging British economy.

Brexit continues to remain in focus, however, with UK markets remaining cautious as a trade deal between the UK and the EU continues to remain in question post-31st January, when the UK is due to exit the European Union.

Sterling will be keeping a close eye on economic developments this week, with any further weakening of the British economy seeing the GBP/CAD exchange rate sink further as rate cut fears rise.

CAD/GBP Exchange Rate Rises as ‘Loonie’ Rises Ahead of US-China Trade Deal Signing

The Canadian Dollar (CAD) rose against the Pound (GBP) ahead of today’s business outlook survey from the Bank of Canada (BoC). As Canada’s economy fared well over the latter part of last year, ‘Loonie’ traders are optimistic that the US-China trade deal could improve the global trade-reliant Canadian economy.

Shaun Osbourne, the Chief Strategist at Scotiabank, commented:

‘[The BoC’s Governor Stephen Poloz] does not sound like a central banker itching to cut rates. The December rebound in jobs (which helped bring total job growth for the 2019 year to 320k – the most since 2007) lessens the risk of a near-term rate cut further and gives the – still undervalued – CAD a little more support.’

However, some of the oil-sensitive Canadian Dollar’s gains are being held back by falling oil prices as easing tensions in the Middle East saw WTI crude oil prices tump to around $59 a barrel.

GBP/CAD Outlook: Could Sterling Sink on a Weakening British Economy?

Sterling investors will be looking ahead to Wednesday’s release of the UK’s consumer price index figure for December, which is expected to hold at 1.7%. However, any signs of improvement could hold off some fears of a BoE rate cut and prove beneficial for the GBP/CAD exchange rate.

Canadian Dollar (CAD) traders, meanwhile, will be awaiting Thursday’s publication of the Canadian ADP employment change figure for December, with any further signs of improvement in Canada’s job sector boosting the ‘Loonie’.

The GBP/CAD exchange rate will continue to be driven by economic developments this week, with any further incentives for the Bank of England to slash its interest rates in the next rate decision being Pound-negative.

David Moore

Contact David Moore