Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Muted as BoC Predicts Slow Return to Pre-Covid Levels
UPDATE: The Pound Sterling Canadian Dollar (GBP/CAD) exchange rate remained flat following the BoC’s decision. This left the pairing trading at around CA$1.7101.
The Bank of Canada (BoC) left interest rates unchanged this afternoon, leaving the pairing flat.
In the bank’s most extensive set of forecasts since the start of the year, the BoC noted the initial rebound from the coronavirus lockdowns has been strong.
However, the ‘Loonie’ struggled to make gains as the bank noted it would be a slow return to levels seen before the pandemic hit.
In its quarterly Monetary Policy Report, the BOC said:
‘The Bank of Canada expects a sharp rebound in economic activity in the reopening phase of the recovery, followed by a more prolonged recuperation phase, which will be uneven across regions and sectors.
‘As a result, Canada’s economic output will likely take some time to return to its pre-Covid-19 level. Many workers and businesses can expect to face an extended period of difficulty.’
Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Edges Higher Ahead of BoC and OPEC+
The Pound Sterling Canadian Dollar (GBP/CAD) exchange rate edged 0.2% higher, leaving the pairing trading at around CA$1.7130.
The Canadian Dollar struggled to make gains against the Pound today, as traders nervously await the latest Bank of Canada (BoC) interest rate decision.
The ‘Loonie’ fell ahead of today’s BoC decision despite data showing oil prices rose.
A sharp drop in US crude inventories along with the anticipation of the latest OPEC+ meeting buoyed oil prices.
Data from the American Petroleum Institute showed US crude inventories fell by a better-than-expected 8.3 million barrels in the week to 10 July, which reflected a recovery in fuel demand.
In a note, ING economists wrote:
‘API numbers released overnight, have provided some support to the market in early morning trading today.’
Attention will now turn to the OPEC+ meeting, and ING economists added:
‘The market will be eager to see if deeper cuts will be rolled over for an additional month, or whether the group will stick to the original plan, and start trimming cuts.
‘Most indications suggest that it will be the latter, with more focus on compliance and compensatory cuts.’
Pound (GBP) Rises as Consumer Prices Unexpectedly Increase
Sterling rose on Wednesday, after data showed inflation unexpectedly rose in June. This was largely due to rising prices for high-demand computer consoles during the coronavirus lockdown.
The Consumer Price Index (CPI) rose by 0.6% last month after a 0.5% increase in May. However, this surprised many investors as economists predicted the index to fall.
In a statement, the Office for National Statistics (ONS) said:
‘It is possible that prices have been influenced by the coronavirus (COVID-19) lockdown changing the timing of demand and the availability of some items, particularly consoles.
‘However, it is equally likely to be a result of the computer games in the bestseller charts.’
Meanwhile, the Pound were limited after the Bank of England’s (BoE) Silvana Tenreyro said the country’s economic recovery would be hindered by increasingly wary consumers.
She noted ‘ongoing social distancing’ could continue to hurt the retail and hospitality sector. Tenreyro said:
‘Behavioural responses mean that the UK economic outlook will continue to depend on the global and domestic spread of COVID-19.
‘Assuming prevalence gradually falls, my central case forecast is for GDP to follow an interrupted or incomplete ‘V-shaped’ trajectory, with the first quarterly step-up in Q3.’
Pound Canadian Dollar Outlook: Bank of Canada (BoC) in Focus
Looking ahead to this afternoon, the Canadian Dollar (CAD) could slide against the Pound (GBP) following the Bank of Canada’s (BoC) interest rate decision.
While the BoC is expected to leave rates unchanged, dovish policymakers could send the ‘Loonie’ lower.
Meanwhile, Sterling traders will be eyeing tomorrow’s employment data which is expected to show the jobless rate rise.
GBP will struggle if May’s unemployment rate rises higher than expected, while June’s claimant count jumps. This could leave the Pound Canadian Dollar (GBP/CAD) exchange rate flat on Thursday.