Pound Canadian Dollar Exchange Rate Forecast: GBP/CAD Wavers on BoE Uncertainty

The Pound Canadian Dollar (GBP/CAD) exchange rate traded erratically through the week as the Bank of England (BoE) gave mixed signals over monetary policy.

What’s Been Happening: GBP/CAD Exchange Rate Fluctuates on Mixed BoE Signals

The Pound (GBP) started the week on the front foot as an improving market mood cheered investors.

However, downbeat labour market data soon soured things. Unemployment unexpectedly ticked higher while wage growth was cooler than forecast. The Pound stuttered on slashed rate hike bets from the Bank of England (BoE).

Further weighing on Sterling was mixed messages from BoE Governor Andrew Bailey. Admitting that inflation would fall rapidly from April deterred investors as expectations of a rate pause loomed. However, Bailey also warned that second-round effects from continually rising wages could keep inflation above the target rate of 2%.

Meanwhile, the Canadian Dollar (CAD) found renewed strength throughout the week amid higher-than-expected inflation. Headline inflation edged up to 4.4% against expectations of 4.1%. Increased rate hike expectations from the Bank of Canada (BoC) buoyed CAD investors.

End of the week and downbeat retail sales softened the Canadian Dollar as sales fell 1.4% in the month of March. Marking the second month of contracting sales, a shaky economy weighed on the ‘Loonie’.

Three Things to Watch Out for This Week

  1. UK Inflation

An expected easing of headline inflation to 8.2% could see rate hike bets pared, but with inflation remaining far above the target rate, the BoE’s job is far from over.

  1. UK Retail Sales

Sales are predicted to bounce back after slipping 0.9% in March. A 0.3% increase could cheer GBP investors.

  1. Oil Prices

WTI crude oil prices could continue to weigh on the commodity-linked Canadian Dollar. With prices languishing below $75 a barrel, further fluctuations could keep a firm lid on the ‘Loonie’.

Pound Canadian Dollar Forecast

Elsewhere, the ongoing US debt ceiling negotiations could keep pressure on the Canadian Dollar until a solution is reached. The positive correlation the ‘Loonie’ shares with the US Dollar (USD) could see the former slide on the latter’s weakness.

Danny Tingle

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