The Pound Canadian Dollar (GBP/CAD) exchange rate was infused with significant volatility last week, after the Bank of England (BoE) issued a stark warning regarding the UK’s economic outlook.
What’s Been Happening: GBP/CAD Exchange Rate Plummets on BoE Recession Fears
The Pound started the week on strong footing amid expectations for a bold 50bps interest rate hike from the BoE.
However, an increasingly divided Conservative party continued to exert downward pressure on the Pound as investors remain unconvinced of either candidate’s respective fiscal policies.
Midweek saw the printing of poorer-than-expected PMI data. The UK services sector reported it worst month for business activity since February 2021, undermining Sterling.
The Pound was then rocked after the BoE raised interest rates at its fastest pace since 1997. But the central bank warned that the UK is likely to slip into a recession later this year.
Meanwhile, the Canadian Dollar (CAD) started the week on the back foot as the manufacturing sector saw an unexpected slowdown. This marked the slowest month of growth in the sector since June 2020.
A surprising drop in unemployment figures provided further support to the Canadian Dollar, highlighting the resilient labour market.
Capping further gains for the Canadian Dollar was the continuing slump in oil prices, as WTI Crude fell to below $90 for the first time since January amid slumps in demand.
Three Things to Watch Out for This Week
- UK GDP Growth
All eyes will be on the latest UK GDP figures this week, with an expected contraction of the UK economy, likely to drag on the Pound.
- Oil Prices
Amid an improving global market sentiment, the demand for oil could soar, boosting the ‘Loonie’.
- UK Political Uncertainty
Ongoing political volatility will keep pressure on the Pound as investors remain cautious towards the next prime minister.
Pound Canadian Dollar Forecast
Elsewhere, the GBP/CAD exchange rate could see further movements with the shifting global market sentiment, a further improvement could see a boost to the ‘Loonie’.