Pound Canadian Dollar (GBP/CAD) Exchange Rate Rallies Ahead of BOC Policy Announcement

Prospect of UK-EU Trade Breakthrough Lifts Pound Canadian Dollar (GBP/CAD) Exchange Rate

Bets that a UK-EU trade deal could be imminent gave the Pound to Canadian Dollar (GBP/CAD) exchange rate a lift.

Fears of a potential no-deal scenario diminished as anticipation grew ahead of a meeting between Boris Johnson and Ursula von der Leyen in Brussels.

Hopes that the two sides could reach an agreement gave Pound Sterling (GBP) a solid boost across the board this morning as worries over the UK economic outlook eased.

While it remains to be seen whether the meeting will deliver an agreement this general heightening of market hopes offered GBP exchange rates a leg up, especially as progress on the Covid-19 vaccine continued.

With the threats facing the UK economy appearing diminished the appeal of the Pound naturally improved, in spite of lingering doubts.

Canadian Dollar Braces for Bank of Canada Policy Announcement

On the other hand, the Canadian Dollar (CAD) struggled to find much traction against its rivals ahead of the latest Bank of Canada (BOC) policy announcement.

Although markets do not expect to see policymakers deliver any change in interest rates at this stage the possibility of a more dovish performance remains.

This limited the appeal of the Canadian Dollar, with investors wary of the potential for the central bank to signal fresh doubts over the strength of the economic outlook.

As long as the BOC appears prepared to keep monetary policy looser for longer the potential for a CAD exchange rate rally looks distinctly limited.

Disappointing Chinese inflation data also put a dampener on the Canadian Dollar on Wednesday, with market risk appetite dented by signs of weakness within the world’s largest economy.

Slowing UK Monthly GDP Set to Weigh on GBP/CAD Exchange Rate

The GBP/CAD exchange rate could fall off its uptrend tomorrow, though, thanks to the release of October’s set of UK production and growth data.

Particular focus looks set to fall on the monthly gross domestic product for October, with the growth rate forecast to slow from 1.1% to 0.4%.

Evidence of a continued loss of economic momentum could weigh heavily on the Pound, given the implications for the fourth quarter growth rate.

Signs that the UK economy faces a potential double-dip recession in the fourth quarter may give investors fresh incentive to sell out of the Pound this week.

Any weakness in the latest manufacturing and industrial production figures may also put pressure on GBP exchange rates, given that the sector has recently helped to offset the slowdown in UK services activity.

Stronger Capacity Utilisation Forecast to Shore up Canadian Dollar

While the BOC policy announcement looks set to dominate the outlook of CAD exchange rates they could find a rallying point ahead of the weekend.

The third quarter Canadian capacity utilisation figure may encourage the Canadian Dollar to return to a stronger footing against its rivals.

With forecasts suggesting that capacity utilisation rose from 70.3% to 77.5% in the third quarter confidence in Canada’s economic health could improve.

Evidence of increasing production capacity would bode well for the quarter’s economic performance, suggesting a greater recovery from the initial impact of the Covid-19 crisis and boosting domestic confidence.

Louisa Heath

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