The Pound Canadian Dollar (GBP/CAD) exchange rate plummeted last week in the wake of the Bank of England’s (BoE) latest interest rate decision.
Last Week: Pound Canadian Dollar Knocked by Dovish BoE
The GBP/CAD exchange rate initially trended higher last week. The Pound (GBP) appreciating on the back of some upbeat UK data.
GBP investors welcomed a surprisingly strong uptick in wage growth in October in addition to the UK’s consumer price index as inflation cooled more than expected last month.
At the same time, trade in the Canadian Dollar (CAD) was choppy at the start of the week. A slump in Canadian government bond yields offset an uptick in oil prices.
The second half of the week then saw a dramatic plunge in GBP/CAD. Sterling fell off a cliff in the wake of the BoE’s final interest rate decision of the year.
The BoE raised rates by 50bps but GBP investors were rattled as two members called for the bank to leave interest rates on hold. The dovish split stoked speculation the bank could pause its tightening cycle early in 2023.
Meanwhile, a continued appreciation of oil prices helped underpin demand for the ‘Loonie’ in the later half of the week.
Three Things to Watch out for This Week
- Canadian Inflation Rate
In the spotlight this week will be Canada’s own CPI release. Inflation is forecast to have slowed last month. Could this dent Bank of Canada (BoC) rate hike bets and weaken CAD exchange rates?
- Canadian Retail Sales
Also influencing the ‘Loonie’ this week will be Canada’s latest retail sales release. A sharp rebound in sales growth may lend some support to CAD in the first half of the session.
- UK GDP
Finalised GDP figures for the third quarter are expected to confirm a contraction in the UK economy. Barring an upwardly revised release, this could place pressure on the Pound later this week.
GBP/CAD Outlook
In addition to data, the Pound Canadian Dollar exchange rate is also likely to be influenced by oil price dynamics. Could a downturn in prices leave the ‘Loonie’ vulnerable to losses?