Pound Canadian Dollar (GBP/CAD) Exchange Rate Hits 37-Year Low on Crude Recovery and Cautious BoE

Pound Canadian Dollar (GBP/CAD) Exchange Rate Slumps as BoE Rate Hike Bets Retreat

(Updated 12:20, 7/9/22) The Pound Canadian Dollar (GBP/CAD) exchange rate shed earlier gains through the second part of Tuesday morning as comments from Bank of England (BoE) policymakers dampened interest rate rise expectations.

As BoE Governor Andrew Bailey spoke before the Treasury committee, he and his colleagues struck a fairly dovish tone.

Huw Pill, the BoE’s Chief Economist, said he expects the anticipated freeze on energy bills to lower inflation in the short term. Catherine Mann said that a policy reversal could come in the near future, while Silvana Tenreyro advocated a slower pace of tightening as the UK heads towards a recession.

Following the committee hearing, the probability for a 75-bp rate hike declined from 71% to 55%.

Meanwhile, a recovery in oil prices boosted the commodity-linked ‘Loonie’. At the time of writing, WTI crude has recovered all of its overnight losses.

GBP/CAD subsequently plunged to CA$1.5030, its lowest level since 1985.

Original article continues below:

Pound Canadian Dollar (GBP/CAD) Exchange Rate Gains amid Weaker Oil

The Pound Canadian Dollar (GBP/CAD) exchange rate rose this morning as a drop in oil prices weighed on the crude-linked Canadian Dollar (CAD). Additionally, Sterling is enjoying some support as markets anticipate long-awaited government action on the UK’s energy crisis.

At the time of writing, GBP/CAD is trading at around CA$1.5148, up from an overnight low of CA$1.5119.

Pound (GBP) Firms amid Energy Support Hopes

The Pound (GBP) is ticking higher against the Canadian Dollar today as GBP investors remain cautiously hopeful that Liz Truss, the new Prime Minister, will tackle the UK’s energy bill crisis.

During the Conservative Party leadership contest, the Pound suffered heavy losses. The UK was sliding towards an economic crisis amid accusations that the government was ‘asleep at the wheel’ for not taking action.

Now, however, reports that Truss will freeze energy bills are cheering GBP investors.

As we are yet to hear the details of the PM’s plans, there is a limit to the optimism around Sterling. The UK still faces surging inflation, a looming recession, and worryingly high government borrowing costs. As a result, GBP’s gains seem limited.

Canadian Dollar (CAD) Slips as Oil Prices Fall

Meanwhile, the commodity-linked Canadian Dollar took a hit as today’s trade began after a fall in oil prices overnight.

WTI crude slipped to its lowest level since before Russia invaded Ukraine in late February.

The downturn in oil prices came amid demand fears as investors fret about a global economic downturn. As central banks continue to raise interest rates, the likelihood of a global recession increases, and if the world economy contracts then demand for oil will slump.

Chinese trade data overnight also contributed to growth fears as both imports and exports declined more sharply than expected. As China is the world’s second-largest economy, a slowdown could ripple out through global markets.

The Canadian Dollar has a strong correlation with crude prices, as oil exports are key for the country’s economy. Therefore the drop has dented CAD exchange rates.

Crude oil prices are recouping some losses at the time of writing, which has allowed CAD to regain some ground. However, it remains down since this morning’s opening levels.

GBP/CAD Exchange Rate Forecast: Volatility Ahead?

Later today, the Bank of Canada (BoC) will meet to set interest rates. Markets expect a rate rise of 75 basis points, which could boost CAD.

However, the move may already be priced in. Instead, CAD traders could be more focused on the bank’s forward guidance. If the BoC indicates that it may be appropriate to slow the pace of policy tightening, the ‘Loonie’ could see further losses.

As for the Pound, speculation about Truss’s plans to freeze energy bills continues. As reports emerge and analysts offer their interpretations, we could see GBP move around.

Tomorrow, Liz Truss will unveil her energy-aid payment package. If it is enough to cushion the UK economy from the impending recession then Sterling could surge. If markets believe it is lacking in vision or scope then GBP could slide.

Samuel Birnie

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