Pound Canadian Dollar (GBP/CAD) Exchange Rate Rises amid Dovish Bank of Canada Hike
(Updated 15: , 25/01/2023) The Pound Canadian Dollar (GBP/CAD) exchange rate has begun to rally this afternoon. The Bank of Canada (BoC) published their latest interest rate decision, upping rates by 25bps.
This was largely priced in by markets already, holding little sway over CAD rates. However, the accompanying press release highlighted that the BoC may hold at this level while they explore the impact of their tightening policy.
The BoC’s report states:
‘If economic developments evolve broadly in line with the MPR outlook, Governing Council expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases.’
However, it did further reiterate that the BoC would continue with the hikes if necessary.
Meanwhile, the Pound (GBP) has staged a recovery this afternoon as interest rate hikes for the Bank of England (BoE) begin to intensify.
Original article continues below:
Pound Canadian Dollar (GBP/CAD) Exchange Rate Narrows as UK PPI Falls
The Pound Canadian Dollar (GBP/CAD) exchange rate is narrowing this morning, following a surprise fall in UK PPI in December.
At the time of writing, GBP/CAD is trading at around CA$1.6467, showing little change from the morning’s opening rates.
Pound (GBP) Stumbles as PPI Unexpectedly Falls
The Pound (GBP) is on the defensive this morning, potentially due to an unexpected fall in PPI figures. During December, manufacturers lowered their prices across the board, which may have a knock-on effect on CPI.
Input prices paid by factories fell by 1.1% in month-on-month terms in December, the biggest drop since April 2020.
As such, interest rate hike bets from the Bank of England (BoE) may be on the downturn as the BoE continues to weigh up further tightening. However, as wage growth was highlighted as a persistent issue yesterday in the UK’s PMI releases, the BoE may remain hawkish.
Adding further pressure to the Pound this morning could be thin trading conditions. As such, Sterling is left vulnerable to a lack of clarity. With no central bank policymakers due to speak today, the impact of the PPI data is largely left up in the air for investors.
Elsewhere, continuing industrial action across the UK could be weighing on GBP. Amazon workers in Coventry are staging the first walkouts of this kind, which could inspire further strike action.
With the economy already feeling the impact of mass walkouts across various sectors, these strikes could add further pressure. Alongside the UK’s bleak economic outlook, any further damage could sour sentiment towards Sterling.
Canadian Dollar (CAD) Steadies as Investors Anticipate BoC Interest Rate Decision
The Canadian Dollar (CAD) is trading narrowly this morning, as investors anticipate this afternoon’s interest rate decision from the Bank of Canada (BoC).
Markets are currently pricing 17bps of tightening, while analysts anticipate a 25bps rate hike. However, the key focus is on the future direction of the BoC’s monetary policy.
Francesco Pesole, FX Strategist at ING, explains:
‘A still-tight jobs market is partly offsetting the decline in headline inflation and signs of economic slowdown, and probably suggests this is the right time to deliver the last 25bp hike of the cycle.’
With this in mind, if the accompanying monetary policy reports indicates a future pause, CAD may weaken this afternoon.
Pound Canadian Dollar (GBP/CAD) Exchange Rate Forecast: UK Retail Sales in Focus
Looking ahead for the Pound, tomorrow brings the Confederation of British Industry’s distributive trades survey for January. The survey examines retail sales, and is forecast to drop from 11 to -5, marking a decline in retail activity.
If this prints as forecast, it may weigh heavily on Sterling following last week’s retail sales data. If the retail sector continues to show signs of struggling, it could add to the UK’s bleak economic outlook.
For the Canadian Dollar, beyond this afternoon’s interest rate decision from the Bank of Canada, liquidity is thin. As such, the oil-linked ‘Loonie’ may trade in tandem with oil price fluctuations. Should prices continue to fall, CAD exchange rates may suffer.