Pound Canadian Dollar Exchange Rate Rocked by Hawkish BoC and UK Political Volatility

The Pound Canadian Dollar (GBP/CAD) exchange rate traded erratically last week amid a mix of UK political uncertainty and the Bank of Canada’s (BoC) shock 1% interest rate hike.

What’s Been Happening: GBP/CAD Exchange Rate Fluctuates amid UK Political Uncertainty

Political uncertainty weighed on the Pound throughout the week as the Conservative party continued to whittle down their PM candidates. With varying and competing tax plans, investors remained cautious of candidates opting for ‘unrealistic’ tax cuts, potentially damaging the economy.

However, a modest tailwind was provided for the Pound as GDP printed above forecast. Expanding 0.5% in May, GDP beat out an expected 0.2% contraction.

The end of the week saw demand for Sterling sapped as worrying news emerged of a 40% rise in company insolvencies in England and Wales. The Ukraine war, Brexit, and the pandemic all continue to weigh on the UK economy.

Meanwhile, the Canadian Dollar spiked in midweek trade as the BoC unexpectedly raised interest rates by 1%. The central bank attempts to rein in inflation as it surprised investors and hiked rates to 2.5%.

Limiting any further gains was troubling news out of China. Soaring Covid cases threatened to slowdown the economy again as lockdowns loom.

Oil prices failed to recover above $100 a barrel after Tuesday’s slump. With global recession fears mounting, crude oil saw a slump in demand, hampering the ‘Loonie’.

Three Things to Watch Out for This Week

  1. Inflation Figures

Inflation data for UK and Canada is to be published this week. Potentially injecting fresh volatility into GBP/CAD as both are expected to see fresh 40-year highs.

  1. Retail Sales

An expected rise in retail sales for Canada could see the Pound falter as the UK is expected to report another slump in retail sales.

  1. UK Politics

With the final four left in the Conservative leadership, the Pound could see further fluctuations as investors continue to digest fiscal policies.

Pound Canadian Dollar Forecast

Elsewhere, the GBP/CAD exchange rate could waver further as investors will be keeping an eye on the rising Covid cases in China and a potential slowing down of their economy.

Danny Tingle

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