GBP/CAD Exchange Rate Edges Higher as Markets Shrug Off BoC Rate Hike
(Updated 15:45 13/4/2022) The Pound Canadian Dollar (GBP/CAD) exchange rate is trending higher this afternoon after the Bank of Canada’s interest rate hike.
As expected, the BoC opted to raise rates by 50bps following its April meeting, but with the move apparently already priced in by CAD investors it appeared a case of ‘buy the rumour, sell the fact’.
This downturn in the Canadian Dollar even defied an appreciation of oil prices, which WTI crude climbing around 1% this afternoon.
Meanwhile, the Pound continued to trade without any bullish conviction this afternoon amidst ongoing concerns over the UK’s cost-of-living crisis.
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Pound Canadian Dollar Exchange Rate Flat ahead of BoC Rate Decision
The Pound Canadian Dollar (GBP/CAD) exchange rate is trading in a narrow range this morning as investors brace for the Bank of Canada’s (BoC) upcoming interest rate decision.
At the time of writing the GBP/CAD exchange rate is trading at around AU$1.6440, virtually unchanged from today’s opening rate.
Canadian Dollar (CAD) Poised to Rally on BoC Rate Hike
The Canadian Dollar (CAD) may shoot higher today as the Bank of Canada is set to raise interest rates as it concludes its latest interest rate decision.
After raising rates by 25 basis points at its March meeting, the BoC is widely expected to accelerate the pace of monetary tightening this month.
In light of the persistent fall in unemployment and sharp rise in domestic inflation, economists are forecasting a 50bps hike today. Such an aggressive hike could help to bolster demand for the ‘Loonie’.
Analysts at ING predict:
‘We expect a 50bps interest rate increase given the economy is in a strong position, particularly given commodity production is such an important story, employment is at record levels, and inflation is at 30+ year highs. BoC voters have made the case for acting aggressively and we expect them to follow up their words with strong action.’
However, ING is less confident in the Canadian Dollar rallying this afternoon, with the bank suggesting that a 50bps hike is already priced in by CAD investors.
‘CAD may not benefit immediately from the hike – which is fully priced in – but should stay supported beyond the very short-term.’
The BoC will deliver its interest rate decision at 15:00 BST.
Pound (GBP) Muted as UK Inflation Soars to New 30-Year High
In the meantime, the Pound (GBP) is struck in a narrow range this morning, following the publication of the UK’s consumer price index.
According to data published by the Office for National Statistics (ONS), UK inflation jumped from 6.2% to 7% in March. This beat forecasts for a more modest rise to 6.7% and was also a new 30-year high.
While the latest jump in inflation will keep the pressure on the Bank of England (BoE) to raise interest rates, GBP investors are concerned about the impact on UK households.
Such a sharp jump in inflation will raise fresh concerns over the UK’s cost-of-living crisis. Any upside in Sterling is being tempered by fears the squeeze on consumers could negatively impact the UK economy this year.
Pound Canadian Dollar Forecast: Events in Ukraine to Inject Fresh Volatility into GBP/CAD?
Looking past the BoC rate decision, the Pound Canadian Dollar (GBP/CAD) exchange rate may trade with additional volatility through the latter half of the week, amidst ongoing concerns over the war in Ukraine.
With Russian President Vladimir Putin claiming that peace talks are at a ‘dead end’, hopes for a negotiated end to the conflict continue to dwindle. This could be particularly worrying for GBP investors who fear a prolonged war will bolster inflationary pressures in the UK.
Meanwhile, oil price dynamics may influence CAD exchange rates. A drop below $100 per barrel for WTI crude could exert some pressure on the Canadian Dollar.