GBP/CAD Plummets as Investors Disappointed by BoE Decision
(Updated 16:00, 04/11/2021) The Pound Canadian Dollar (GBP/CAD) exchange rate has fallen steeply this afternoon following an unexpectedly dovish monetary policy decision from the Bank of England (BoE).
Investors had priced in a rate hike on hawkish comments from Governor Andrew Bailey last month. Bailey said in response to rising inflation that the Bank ‘will have to act and must do so if we see a risk, particularly to medium-term inflation and to medium-term inflation expectations’.
However, the Monetary Policy Committee decided it would neither hike interest, nor alter its quantitative easing programme. Just two policymakers, Dave Ramsden and Michael Saunders, voted to raise interest rates at October’s meeting- with others citing a need for more employment data.
Consequently, Andrew Bailey has been cast in the role of the ‘unreliable boyfriend’ – a tag that was attributed to previous Governor Mark Carney on account of hinting one thing and acting the other way.
Michael Hewson of CMC Markets has blamed today’s confusion on poor communication:
‘What we’ve seen today is a failure to communicate by the Bank of England… Governor Andrew Bailey had briefed on more than one occasion in recent weeks that a hike was coming due to rising inflation expectations.
This view was reinforced by new chief economist Huw Pill… Even more puzzling was that neither Bailey nor Pill voted for a hike’.
Original article continues below:
Pound Canadian Dollar Exchange Rate Sinks as Investors Await Policy Announcements
The Pound Canadian Dollar (GBP/CAD) exchange rate is falling this morning ahead of the Bank of England (BoE)’s interest rate decision and policy report.
Opinion is divided over whether the central bank will raise interest rates: a 15-point hike could ease off price pressures, although several Monetary Policy Committee (MPC) members believe pressures are only temporary.
At the time of writing, GBP/CAD is trading at C$1.6925, up slightly from today’s opening levels.
Pound (GBP) Subdued Ahead of BoE Decision
The Pound (GBP) is trading down against the majority of its peers as investors await the BoE’s decision. A mixed market mood dampens Sterling support, as traders prefer risk-off currencies in times of uncertainty.
According to Reuters, today’s announcement marks the most ‘hotly awaited’ policy decision in years. Ana Boata, head of economic research at Euler Hermes, explains the conflict:
‘By not acting, (the BoE) risks creating even more inflation; however, embarking on an earlier monetary policy tightening cycle is premature and could raise the risks of a technical recession.’
BoE Governor Andrew Bailey has opted for a hawkish tone in recent speeches – three other MPC members share his thinking.
However, another two say raising rates now would do nothing to address the sudden reopening of the world economy. Remaining MPC members have not made their opinions clear, casting ambiguity over where the majority lies.
Canadian Dollar (CAD) Climbs on Rising Oil Prices
The Canadian Dollar (CAD) has firmed overall as oil prices rise. Later today, the Organization of the Petroleum Exporting Countries (OPEC) and its allies will reveal their decision on whether to pump more oil, which will likely impact CAD trading.
Reporters confirm that OPEC are unlikely to ‘open up the taps’, instead choosing to keep oil markets tight and take advantage of elevated prices to improve fiscal accounts.
Various world leaders have spoken out against the organisation’s anticipated decision. US President Joe Biden remarked at the G20 summit in Rome:
‘The idea that Russia and Saudi Arabia and other major producers are not going to pump more oil so people can have gasoline … is not right.’
Despite high prices hurting consumers, however, major oil producers agree that the group’s policy to gradually increase oil production by 400,000 barrels per day each month remains sufficient.
Angola’s oil minister Diamantino Pedro Azevedo said on Sunday that the program ‘is working well and there is no need to deviate’; a sentiment echoed by Russia, Kuwait, Iraq, Nigeria and Algeria.
GBP/CAD Exchange Rate Forecast: BoE Decision, CA Trade Balance to Influence Trading?
Looking ahead, this afternoon’s activities will likely inspire movement in the Pound Canadian Dollar exchange rate.
Initially, the Bank of England’s rate decision is likely to influence Sterling trading; following shortly after, Canada’s balance of trade is likely to bolster or subdue ‘Loonie’ sentiment, depending upon whether the country’s trade surplus falls as expected.