Update: GBP/CAD Exchange Rate Falls on Surprisingly Dovish Bank of England Rate Statement
The Pound (GBP) fell further against the Canadian Dollar (CAD) this afternoon after the Bank of England (BoE) held interest rates but admitted that it sees inflation and growth in the UK as largely ‘temporary’.
Members of the Monetary Policy Committee (MPC) said:
‘The economy will experience a temporary period of strong GDP growth and above target inflation after which growth and inflation will fall back.’
As a result, Pound investors have become more cautious about the outlook for the British economy, especially now that the BoE has struck a surprisingly dovish tone in its latest policy statement.
GBP/CAD Exchange Rate Falls But Could a Bullish Bank of England Boost Sterling?
The Pound Canadian Dollar exchange rate dipped this morning following a surge in daily cases of Covid-19 infections to 16,135 on Wednesday, up by 7,080 against the previous week. The pairing is fluctuating around CA$1.71 at the time of writing.
Sterling struggled today as the sharp rise in coronavirus cases has cast doubt on whether the government will lift lockdown restrictions either before or on 19 July.
Vaccines Minister Nadhim Zahawi, however, expressed confidence in the UK’s Covid-19 vaccination efforts, saying:
‘I am confident that we will have 66% of the adult population with the protection of two jabs by that date that the prime minister has set us.’
Mary Ramsay, a doctor and head of immunisation at PHE, also said that vaccines were expected to work against both the Delta variant of the virus and the new Delta Plus variant, recently observed in India.
‘The good message is that what we expected to happen with Delta was that the vaccines would prove to still work against the more serious disease, and we expect the same for this other variant.’
GBP investors are eyeing the Bank of England (BoE) today. Although the Bank is expected to hold interest rates at 0.1%, any indications that it could withdrawal stimulus could buoy confidence in the outlook for the UK economy.
Berenberg’s senior economist, Kallum Pickering, expressed optimism in the nation’s economic recovery, saying:
‘The UK is recovering at breakneck speed with only a modest hit from the renewed spike in SARS-CoV-2 infections.’
So, could a bullish BoE see the Pound Canadian Dollar exchange rate claw back some of its losses later today?
Canadian Dollar (CAD) Exchange Rate Edges Higher on Rising Oil Demand
The commodity-linked Canadian Dollar rose today as oil prices continue to rise with oil prices trading around $73.48.
Bloomberg analysts, Kevin Crowley and Francois de Beaupuy, commented on the current state of the oil market:
‘Global oil markets had one of the most turbulent years in history last year with the coronavirus pandemic sending prices crashing. But economies in the West are growing again, roads in Europe and the U.S. are starting to fill up, and more Americans are flying.’
Oil is one of Canada’s largest and most lucrative exports, so indications that oil prices could further rise this year has buoyed demand for the ‘Loonie’.
In the absence of any notable Canadian economic today, CAD investors will continue to monitor global risk sentiment and the US economy.
Any signs of large economies such as the Eurozone, the US and China are beginning to recover from the Covid-19 pandemic would further bolster demand for oil. This would uplift oil prices and the commodity-correlated ‘Loonie’.
Pound Canadian Dollar Exchange Rate Outlook: UK Consumer Confidence Data in Focus
Pound (GBP) investors will monitor tomorrow’s release of the latest UK consumer confidence gauge for June. If this points to an improvement in consumer morale this month, then the Pound Canadian Dollar exchange rate could head higher.
However, if UK Covid-19 cases continue to rise, then we could see Sterling suffer over growing concerns over a potential delay to the easing or lifting of lockdown measures next month.
Oil prices will be the key factor for the Canadian Dollar for the rest of this week. Could rising demand for oil further drive-up the ‘Loonie’?