Pound Canadian Dollar Exchange Rate Limited as Bank of Canada Leaves Policy Frozen

Pound Canadian Dollar Exchange Rate Struggling to Sustain Recovery

Some stronger than expected UK data today only let to a brief jump in demand for the Pound Canadian Dollar (GBP/CAD) exchange rate. Strong oil prices and expectations for a steady Bank of Canada (BoC) are helping the Canadian Dollar (CAD) to hold its ground.

Since opening this week at the interbank level of 1.73, GBP/CAD has been trending with a slight upside bias. So far, the pair has climbed around half a cent.

GBP/CAD was unable to hold a high of 1.74 seen this morning, due to resilience in the Canadian Dollar. The Pound’s own strength is also limited amid uncertainties over Britain’s coronavirus situation.

Still, the Canadian Dollar could weaken tonight if the Bank of Canada is more dovish than expected in its January policy decision.

Pound (GBP) Exchange Rates See Limited Boost Thanks to Impressive Inflation

The Pound saw a brief surge of demand this morning, as investors reacted with surprise to the latest UK inflation rate results.

Britain’s December inflation rate beat forecasts in both monthly and yearly prints. The yearly figure, notably, doubled from 0.3% to 0.6%.

It indicated to markets that Britain’s prices were resilient to the impact of the coronavirus pandemic. Some economists also predicted that UK price pressures could surge later in the year as the pandemic calms.

The Pound’s rebound was limited though, as coronavirus uncertainties continued to weigh on the UK outlook.

Canadian Dollar (CAD) Exchange Rates Resilient as Bank of Canada (BoC) Freezes Rates

The Canadian Dollar was fairly resilient today. After some light speculation that the Bank of Canada (BoC) would become more dovish earlier this month, the BoC was ultimately unsurprising in today’s decision.

The BoC’s January policy decision, held this afternoon, saw the bank leave monetary policy frozen as analysts had expected. Canada’s interest rates are at their lowest levels on records.

According to the bank’s statements, vaccine rollout has helped the outlook:

‘The medium-term outlook is stronger than in the October Report because of the positive effects from vaccines, greater fiscal stimulus, stronger foreign demand and higher commodity prices,’

The BoC did forecast that Canada’s economy would contract in the first quarter of 2021 however. This, as well as speculation of weakness in the oil prices outlook, is making it harder for CAD to avoid losses.

Pound Canadian Dollar (GBP/CAD) Exchange Rate Could Shed This Week’s Gains

Unless Britain’s economic outlook shows more signs of resilience, the Pound to Canadian Dollar exchange rate may struggle to sustain many gains this week.

The Canadian Dollar’s movement will continue to be driven by reaction to the Bank of Canada (BoC) policy decision over the coming sessions.

On top of this, developments on Canada’s coronavirus situation and oil prices will continue to drive the risk and trade-correlated Canadian Dollar.

More notable Canadian and UK ecostats are due for publication through the end of the week.

Tomorrow will see the publication of Canada’s December employment data from ADP. Friday will follow with November’s key retail sales results.

Friday will be a key session for UK data, with retail sales from December and PMI projections for January due to be published.

Of course, any surprising shifts in market sentiment caused by US politics or the global coronavirus situation could also cause some movement in the Pound Canadian Dollar (GBP/CAD) exchange rate.

Josh Jeffery

Contact Josh Jeffery