The Pound Canadian Dollar (GBP/CAD) exchange rate staged a strong recovery last week after UK inflation remained high, bolstering Bank of England (BoE) rate hike bets. Meanwhile, volatile oil prices capped the Canadian Dollar from making significant gains.
What’s Been Happening: GBP/CAD Exchange Rate Strengthens amid BoE Rate Hike Optimism
The Pound (GBP) opened the week on the back foot amid a lack of data left it vulnerable to external pressures. Fresh recession fears were compounded by Brexit headwinds as a spokesperson for Downing Street admitted significant difference remained between UK and EU over the Northern Ireland protocol.
In midweek trade robust wage growth and inflation figures propelled Sterling sharply higher. The data bolstered expectations for further interest rate hikes from the BoE.
At the end of the week Sterling lost momentum and weakened modestly amid poor retail sales. Expectations of a 0.5% increase were dashed by 1% decline, highlighting the cost-of-living crisis weighing heavily on the UK economy.
Meanwhile, the Canadian Dollar started the week strongly as WTI crude climbed higher amid improving risk sentiment. However, Tuesday saw the ‘Loonie’ dip as inflation softened further than expected, tempering Bank of Canada (BoC) rate hike expectations.
The end of the week saw the ‘Loonie’ recoup some of its losses after Canadian retail sales printed far better than expected, highlighting a resilient economy.
Three Things to Watch Out for This Week
- BoC Interest Rate Decision
An expected 25bps rate hike from the BoC is likely to signal the BoC is nearing the end of its tightening cycle and could weigh on the Canadian Dollar.
- UK Industrial Action
With warnings of joint action looming, further industrial action could increase pressure on the UK economy, and the Pound.
- UK CBI Distributive Trades
With tumbling retail sales in December, firms are expecting a firm decline in the sector as inflationary pressures remain elevated.
Pound Canadian Dollar Forecast
Elsewhere, fluctuating oil prices could exert further pressure on the commodity-linked ‘Loonie’. A souring market sentiment could see the black gold slide, and take the Canadian Dollar with it.