Pound Canadian Dollar Weekly Forecast: GBP/CAD Plunged to Lowest Level Since 1985 amid UK Budget Woes

The Pound Canadian Dollar (GBP/CAD) exchange rate fell dramatically in the wake of Kwasi Kwarteng’s sweeping tax cut plans.

What’s Been Happening: GBP/CAD Exchange Rate Crashed on Unfunded Tax Plans

The Pound (GBP) opened the week trading narrowly before coming under pressure. Public sector borrowing increased more than expected as August figures reached £11.8bn.

Expectations of a bolder 75bps rate hike from the Bank of England (BoE) help to boost the Pound in mid-week trade. But the central bank ultimately opted for a 50bps interest rate hike. Coupled with dovish comments, demand for Sterling waned.

At the end of the week the Pound came under significant selling pressure after UK Chancellor Kwasi Kwarteng unveiled his mini-budget. His plans for sweeping tax cuts funded through increased borrowing sent the GBP/CAD exchange rate into freefall. The pairing striking its worst level in 37 years.

Meanwhile, the Canadian Dollar (CAD) was steady at the start of the week as investors awaited the August inflation reading. Softer-than-expected CPI edged lower to 7%, with retreating fuel prices leading the decline.

Elsewhere, oil prices continued to fluctuate wildly on the back of escalating tensions in Ukraine and mounting recession fears. WTI crude climbed to just above $85 a barrel but was unable to hold before tumbling to the lowest levels since January. This infused volatility into the oil-sensitive ‘Loonie’.

Three Things to Watch Out for This Week

  1. Canada GDP Growth

Will another contraction in Canadian GDP in August lead the ‘Loonie’ to weaken this week?

  1. UK GDP Growth

The UK’s own GDP figures are expected to confirm a contraction of growth in the second quarter. Potentially leading to a weaker Pound.

  1. UK Budget Fallout

With the BoE appearing to rule out an emergency rate hike, all eyes will turn to Kwasi Kwarteng as he holds a crisis meeting with London’s top bankers. Could a U-turn on the budget help to revive the Pound’s fortunes?

Pound Canadian Dollar Forecast

Elsewhere, the oil market will be closely monitored, and any further updates out of Ukraine could weigh on global market sentiment.

Danny Tingle

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