Pound (GBP) Slumps as BoE Decision Prompts Bearish GBP Trading
The Pound (GBP) fell against the Canadian Dollar (CAD) this afternoon as the Bank of England (BoE) kept interest rates at 0.1% and reiterated that it doesn’t intend to tighten monetary policy until significant progress is made in achieving the 2% inflation target sustainably.
Alongside this disappointing announcement, Canadian balance of trade figures printed with a surplus rather than a deficit as expected. The widest trade surplus since September of 2008, the CA$3.23 billion figure has boosted CAD trading sentiment following falling oil prices earlier in the week.
Combined, these two events have extended the downside pressure upon the GBP/CAD exchange rate, bringing the pairing to a two-day low.
(Updated 16:08, 5/8/21)
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Pound Canadian Dollar (GBP/CAD) Exchange Rate Wavers Ahead of Interest Rate Decision
The Pound Canadian Dollar (GBP/CAD) exchange rate is fluctuating this morning after seeing some losses overnight. Investors anxiously await the Bank of England (BoE)’s interest rate decision today, hoping for some clarity on tapering plans.
At the time of writing, the Pound (GBP) is trading at CA$1.7419, virtually unchanged from this morning’s opening levels.
Pound (GBP) Up Against Peers Today as Investors Await Forward Guidance
The Pound (GBP) has gained against the majority of its peers this morning as investors adopt a bullish stance ahead of the Bank of England’s interest rate decision.
The BoE is broadly expected to keep its benchmark interest rate and its bond-buying programme unchanged, although two policymakers said last month that the bank could reverse monetary stimulus sooner than expected.
While most of the BoE’s other rate-setters have said the acceleration in price growth is likely to prove transitory, officials had already announced they would ‘soon’ publish new guidance.
GBP traders’ optimism was encouraged yesterday by an above-expected PMI, which set Sterling apart from its European cousin as data elsewhere disappointed. UK inflation hit 2.5% in June, exceeding the bank’s target, while unemployment remains low – both indicators of the UK’s economic recovery.
Economists encourage caution, however, reminding that the government’s furlough scheme is set to expire next month alongside other pressures. Yohay Elam writes:
‘The headline Consumer Price Index has hit 2.5% YoY in June, after standing at only 0.4% in February. However, most of the increase is due to last year’s CPI crash – a base effect that had been foreseen. [And] while fresh expansion has been robust, it failed to meet expectations in the past two monthly releases, currently curtailed by the ‘pingdemic’…’
Canadian Dollar (CAD) Faces Pressure from Falling Oil Prices
The oil-sensitive Canadian Dollar came under pressure yesterday as prices dropped by $2 per barrel. The decline continues today, as prices slide towards $70 a barrel, with more countries imposing fresh restrictions to counter a surge in COVID-19 cases.
China, the world’s second-largest oil consumer, has imposed restrictions in some cities and cancelled flights, threatening fuel demand. In the United States, the world’s biggest oil consumer, COVID-19 cases have hit a six-month high, with more than 100,000 infections reported on Wednesday.
Also weighing on prices was a surprise 3.6 million barrel build in U.S. crude stockpiles last week, according to data from the U.S. Energy Information Administration (EIA).
Amidst oil price pressures, there has been little else to boost CAD prospects. Canada published its Markit manufacturing PMI on Tuesday, which printed lower than expected, although the latest reading pointed to the 13th straight month of expansion in the country’s factory activity. Manufacturers remained upbeat about their prospects for output growth over the coming year.
Pound Canadian Dollar Exchange Rate Forecast: Dovish BoE to Weigh upon the Pound?
While there’s some hope that the UK’s central bank may provide tapering clues, a dovish BoE decision seems to be the most likely.
With three upcoming events relating to the bank – the rate decision, meeting minutes and Monetary Policy Report – the BoE’s forward guidance is likely to have a significant effect on trading. If policymakers echo the Federal Reserve Bank in America, a cautious approach will prevail.
Meanwhile, Canada’s balance of trade will be released today and may provide some support to the ‘Loonie’. The country’s trade deficit is expected to contract to CA$-0.8 billion from CA$-1.39 billion last month.