The Pound Canadian Dollar (GBP/CAD) exchange rate softened through last week. Despite the UK economy expanding modestly, recovering oil prices boosted the Canadian Dollar (CAD).
What’s Been Happening: GBP/CAD Exchange Rate Slips despite UK GDP Growth Surprises
The Pound (GBP) started the week relatively strong as the Confederation of British Industry (CBI) reported signs of resilience in the UK retail sector. Sales volumes are expected to return to growth for the first time since September.
Reassurances from Bank of England (BoE) Governor Andrew Bailey supported Sterling. He spoke of the strength of the UK banking system, allaying contagion fears. Further propping up the Pound were hawkish comments in regard to future interest rate hikes amid stubborn sky-high inflation.
End of the week and the final GDP growth data revealed the UK economy avoided a technical recession and expanded 0.1% in Q4 2022, compared to expectations of stagnation.
Meanwhile, the Canadian Dollar enjoyed its correlation to WTI crude and climbed steadily alongside the black gold. Oil prices picked up and finally breached $75 a barrel, having recently languished amid multi-week lows.
However, the positive correlation the ‘Loonie’ shares with the US Dollar (USD) likely capped CAD’s gains as USD weakened considerably amid pared rate hike bets from the Federal Reserve.
On Friday, the Canadian Dollar was boosted by better-than-expected GDP growth. Against expectations of 0.3% growth, the Canadian economy expanded by 0.5% in January.
Three Things to Watch Out for This Week
- BoE Financial Policy Summary and Record
Sterling could climb if the central bank sounds upbeat about the resilience of the UK financial system.
- Canadian Unemployment Rate
The ‘Loonie’ could come under pressure if unemployment ticks up as expected, with forecasters predicting the jobless rate will rise from 5% to 5.1%.
- Canadian Ivey PMI
Canada’s Ivey PMI is expected to slip back into contractionary territory at 49, which could sour sentiment around CAD.
Pound Canadian Dollar Forecast
Elsewhere, the commodity-linked ‘Loonie’ could benefit from the scaled back production of oil from OPEC+, potentially pushing crude prices even higher.