The Pound Canadian Dollar (GBP/CAD) exchange rate strengthened modestly last week amid growing expectations of further tightening from the Bank of England (BoE). Meanwhile, tumbling oil prices kept a firm lid on the commodity-linked ‘Loonie’.
What’s Been Happening: GBP/CAD Climbs amid BoE Tightening Expectations
The Pound (GBP) opened the week relatively muted as the UK services PMI disappointed GBP investors. Despite signalling a fourth straight month of expanding activity, the data revealed a moderate slowdown in growth.
Sterling then came under pressure when the latest retail sales monitor showed a slowdown in the retail sector too. The British Retail Consortium (BRC) reported that year-on-year sales in May slowed to 3.7% from 5.2% in April.
A dearth of economic data for the rest of the week left Sterling buoyed by elevated interest rate hike bets. The market expects the BoE to keep raising rates until reaching 5.5% by the autumn.
Meanwhile, the Canadian Dollar (CAD) started the week on the front foot as WTI crude prices ticked higher, but a weaker-than-expected Ivey PMI then weighed on the ‘Loonie’.
Midweek and the Bank of Canada (BoC) surprised markets and opted for a hawkish 25bps rate hike. However, the momentum soon lost steam as oil prices nosedived to an eight-day low amid reports that Iranian oil sanctions were to be eased, boosting supply.
End of the week, the Canadian Dollar lost more demand as unemployment ticked higher than expected as the jobless rate rose to 5.2%.
Three Things to Watch Out for This Week
- BoE Rate Hike Expectations
With wage growth jumping higher than expected, further tightening is becoming more likely beyond June, which is supporting the Pound.
- UK Economic Growth
Monthly GDP is expected to return to growth in April, potentially boosting GBP.
- Oil Prices
Fluctuating oil prices could keep a lid on the Canadian Dollar as WTI crude continues to struggle to stay above $67 a barrel.
Pound Canadian Dollar Forecast
Elsewhere, the positive correlation the Canadian Dollar shares with the US Dollar could see the former slide if cooling US inflation pares further rate hike bets from the Federal Reserve.