The Pound Canadian Dollar (GBP/CAD) exchange rate climbed through the week amidst choppy trading conditions. A relatively quiet week of trading meant market sentiment became the main driver.
What’s Been Happening: GBP/CAD Climbed Despite UK Domestic Headwinds
The Pound opened the week on the back foot amid thin trading conditions. A downbeat economic outlook kept pressure on Sterling, compounded by a myriad of domestic woes.
Midweek and the announcement of a UK-US gas deal buoyed investors’ spirits. To safeguard the UK against surging energy prices stemming from Putin’s war efforts, the UK will be stepping up gas imports from the US.
An increasingly volatile market mood left Sterling to trade in choppy conditions. Domestic headwinds persisted, sapping demand for the Pound. The struggling economy, compounded by increasing industrial action, kept a lid on Sterling.
Meanwhile, the Canadian Dollar started strongly as an uptick in oil prices boosted the commodity-linked ‘Loonie’. However, those gains soon faded as global demand waned, dragging WTI crude, and the Canadian Dollar, lower.
Providing some modest support for the ‘Loonie’, however, was the Bank of Canada’s (BoC) decision to raise interest rates by 50bps, as expected. Fears of a smaller rise were quashed, and the Canadian Dollar climbed modestly.
Three Things to Watch Out for This Week
- UK Inflation
An expected softening of headline CPI could weigh on Sterling. However, with inflation still extremely high, further expected rate hikes could provide tailwinds.
- BoE Interest Rate Decision
Despite an expected softening of inflation, the Bank of England (BoE) is unlikely to deviate from its expected 50bps rate hike.
- Oil Prices
A persistently volatile market mood could see oil prices fluctuate further. An improving global market sentiment could see prices climb, boosting the ‘Loonie’.
Pound Canadian Dollar Forecast
Elsewhere, UK employment data could influence the BoE’s monetary policy going forward. An expected climb in unemployment could point to a cooling labour market.
Meanwhile, the Federal Reserve will be announcing their latest interest rate decision. A hawkish Fed could continue to weigh on global market sentiment.