GBP/CAD Exchange Rate Dives as BoC Ends Quantitative Easing
(Updated 16:00, 27/10/2021) The Pound Canadian Dollar (GBP/CAD) exchange rate is rocketing down this afternoon as investors respond to the latest interest rate decision from the Bank of Canada (BoC). Policymakers decided in October to end the central bank’s quantitative easing programme and move into the reinvestment phase, purchasing Government of Canada bonds solely to replace those maturing.
The BoC also kept its target for the overnight rate at 0.25% as predicted, and expects borrowing costs to remain at the current level until sometime in the middle quarters of 2022 – compared to previous guidance of sometime in the second half of next year. The bank had come under pressure following last week’s high inflation reading, with markets pricing in an earlier rate hike.
Meanwhile, the UK’s autumn budget has failed to buoy the Pound against its peers. Despite reassurances of a £2bn increase in welfare spending and a pay rise for 2 million people, investors are cognizant of Rishi Sunak’s warning that inflation is forecast to reach 4% over the next year, as related problems will not be solved overnight.
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GBP/CAD Exchange Rate Fluctuates on Risk-Off Trading
The Pound Canadian Dollar (GBP/CAD) exchange rate is trading flat this morning as both currencies await significant data releases this afternoon. The UK’s autumn budget is expected to confirm a public sector pay rise, alongside investments in education and the healthcare sector.
At the time of writing, GBP/CAD is trading at C$1.7052, virtually unchanged from today’s opening levels.
Pound (CAD) Trades Mixed Ahead of Autumn Budget
The Pound (GBP) is trading in a mixed range against its peers this morning, having relinquished some of its gains following yesterday’s impressive CBI data. The UK’s distributive trades figures revealed a new sales balance of +30, exceeding expectations of +13.
Today’s autumn budget is not expected to reveal too many surprises, as most of the content has been pre-briefed. Markets are expecting the Chancellor of the Exchequer to announce increases to public sector pay, alongside a significant cash injection for the NHS, investment in regional transport, skills, housing and education.
Also expected is a freeze on fuel duty, which may help to alleviate recent concerns over exorbitant prices at the petrol stations. UK fuel prices hit an all-time high over the weekend, amid oil market pressure on rising energy demand.
Meanwhile, headwinds persist over the Northern Ireland protocol. Brexit Minister David Frost has blamed the long-running dispute over Brexit rules for ‘generating mistrust’ between the UK and EU- talks continue today to discuss whether EU regulations could be swapped for international law.
Canadian Dollar (CAD) Directionless Amid BoC Uncertainty
The Canadian Dollar (CAD) is struggling for direction this morning ahead of this afternoon’s interest rate decision from the Bank of Canada (BoC).
The central bank is expected to leave its benchmark rate unchanged today, but may betray a more hawkish outlook given last week’s higher-than-expected inflation reading. The cost of just about everything that Statistics Canada measures was more expensive in September, raising headline inflation to its highest level since 2003.
Up until now, the central bank has maintained that it will not raise its interest rate until the second half of 2022, but inflation may alter these plans- given runaway CPI data, economists and investors have come around to the idea that benchmark interest may move higher in the first part of 2022, with money markets pricing in the first hike by April.
While analysts caution that if the BoC were to hike before the second half of next year, it would likely adjust its guidance in advance, there is a precedent. In 2010, then BoC Governor Mark Carney abandoned a conditional pledge to keep rates on hold, and then hiked them earlier than expected.
According to Royce Mendes, senior economist at CIBC Capital Markets:
‘If the last time [the BoC] broke [its] promise, well then this time it might be reasonable for markets to be pricing in more, rather than fewer, rate hikes next year than the Bank of Canada is currently telling us.’
Pound Canadian Dollar Exchange Rate Forecast: CA Inflation to drive Movement?
As the least predictable of today’s major releases, this afternoon’s release from the BoC is likely to be the main mover for GBP/CAD.
If the central bank hints at an earlier rate hike than initially planned, markets are likely to respond positively; conversely, if policymakers retain a dovish tone, CAD may trend down against its peers.
Crude oil prices may also affect Pound Canadian Dollar trading today, as WTI falls from yesterday’s peak above $85 per barrel.