The Pound Canadian Dollar (GBP/CAD) exchange rate trended down throughout last week’s session as company insolvencies reports reinforce concerns over the UK’s economy.
What’s Been Happening: Pound Canadian Dollar Stumbles on UK Economic Uncertainty
The Pound exchange rate faced headwinds at the beginning of last week’s session as the UK’s cost of living crisis continued to unnerve GBP investors. Fears over flagging consumer spending also dampened Bank of England (BoE) interest rate hike bets.
Meanwhile, the ‘Loonie’ firmed as Bank of Canada (BoC) Governor Tiff Macklem delivered a hawkish speech.
Despite this, declining oil prices capped gains for the commodity-linked CAD.
In mid-week trade the Pound was able to claw back some of these losses as GBP investors bought the dip.
However, a weak performance from the Confederation of British Industry’s (CBI) distributive trades balance limited GBP’s appeal.
In the second half of the week, concerns over the sharp rise in company insolvencies in the UK gave rise to additional concerns over the UK’s economic trajectory. This pushed the GBP/CAD exchange rate to a two-year low, before a market correction helped the Pound to mount a recovery at the end of the session.
At the same time, the ‘Loonie’ was strengthened by a better-than-expected Canadian GDP: the Canadian economy expanded by 1.1% in February.
Three Things to Watch Out for This Week
- BoE Interest Rate Decision
The BoE is expected to raise rates to 1% on Thursday. This is largely priced-in however, leaving the primary focus on the bank’s forward guidance. Should BoE strike a cautious tone, it may weaken GBP exchange rates.
- Canadian Trade Balance
The Canadian trade balance is forecast to increase from CA$2.66bn to CA$3.9bn. If this print true, it may bolster demand for the ‘Loonie’.
- Canadian Unemployment Rate
Canadian unemployment is forecast to have fallen to 5.2% in April. This could help to bolster the Canadian Dollar at the end of the week.
Pound Canadian Dollar Forecast
Looking ahead, the GBP/CAD exchange rate could test new lows this week if the BoE undermines rate hike expectations with some dovish forward guidance this week.