The Pound Canadian Dollar (GBP/CAD) exchange rate fell sharply last week. The pairing striking a two-week low in the wake of the Bank of England’s (BoE) latest interest rate decision.
Last Week: Pound Canadian Dollar Nosedives on Dovish BoE Rate Decision
The Pound (GBP) got off to a poor start last week. Sterling sentiment soured after the International Monetary Fund (IMF) warned the UK would be the only major economy to shrink in 2023.
The GBP selling bias was then reinforced by the BoE’s latest interest rate decision. While the BoE raised rates by 50bps as forecast, markets were disappointed by the bank’s dovish tone.
In addition to two policymakers calling for interest rates to remain unchanged, BoE Governor Andrew Bailey also suggested UK inflation is likely to have peaked. This led the Pound to plunge as it stoked speculation the BoE is nearing the end of its hiking cycle.
Meanwhile, the Canadian Dollar (CAD) got off to a slow start last week as demand for the commodity linked currency was undermined by a drop in oil prices.
CAD exchange rates then firmed in mid-week trade on the back of an upbeat manufacturing PMI. These gains were then extended through to the end of the week thanks to the ‘Loonie’s positive correlation with the US Dollar (USD).
Three Things to Watch out for This Week
- UK GDP
The focus for GBP investors this week will be the publication of the UK’s latest GDP release. The fourth quarter figures will reveal whether the UK slipped into a recession at the end of 2022. Expect to see the Pound strengthen if the UK avoided a contraction.
- Canadian Employment Figures
Acting as the main catalyst for the ‘Loonie’ this week will be Canada’s latest jobs report. Will a rise in unemployment last month drag the Canadian Dollar lower?
- Oil Prices
CAD exchange rates are also likely to remain sensitive to oil price dynamics. Another uptick in crude prices could lift the ‘Loonie’.
Pound Canadian Dollar Outlook
In addition to the data mentioned above, the GBP/CAD exchange rate may also be driven by market sentiment. A downbeat mood could disproportionately impact the Pound.