The Pound Canadian Dollar (GBP/CAD) exchange rate weakened through last week’s session as the ‘Loonie’ enjoyed support from several upbeat data releases, while Sterling was pressured by fiscal and political uncertainty.
What’s Been Happening: CAD Supported by Ivey PMI, Employment Data
Strengthening the Canadian Dollar last week was a clutch of positive data, alongside a sustained rise in the price of WTI crude oil.
September’s manufacturing PMI boosted CAD, printing above expectations, although gains were briefly capped in midweek trade by a weaker-than-expected balance of trade for August.
Canada’s Ivey PMI exceeded expectations on Thursday, though still falling from August’s reading. Subsequently, a drop in unemployment bolstered the ‘Loonie’ at the end of the week.
Meanwhile, a lack of significant data in the UK left the Pound driven primarily by domestic fiscal policy.
Chancellor Kwasi Kwarteng’s scrapping of his plans for tax cuts for the UK’s highest earners initially bolstered Sterling. Before disappointment over Liz Truss’s Conservative conference speech quickly reversed these gains.
Industrial action and a downgraded credit outlook weighed further upon GBP exchange rates, compounding Sterling losses.
Three Things to Watch Out for This Week
- Turmoil in UK markets
A repricing of government debt led to a ‘fire sale’ of UK bonds. The Bank of England (BoE) has responded by expanding its emergency bond-buying program, but prolonged volatility could weaken GBP further.
- UK GDP
Wednesday’s GDP release is expected to reveal that the UK economy stagnated in August. If the data prints as expected, the Pound may weaken.
- Oil Price Dynamics
Amidst a lack of data this week, the oil-linked Canadian Dollar will likely take direction from crude prices. So far this week oil prices are falling, pressuring the ‘Loonie’.
Pound Canadian Dollar Forecast
Exposure to volatile conditions, in addition to a mixed jobs report, is likely to keep Sterling exchange rates under pressure in the near-term. However, CAD weakness due to falling oil prices means GBP/CAD may extend modest gains this week.