The Pound Canadian Dollar (GBP/CAD) exchange rate climbed last week amid elevated interest rate hike bets from the Bank of England (BoE).
What’s Been Happening: GBP/CAD Strengthens on Prospect of Further BoE Tightening
The Pound (GBP) started the week on the front foot as BoE policymaker Jonathan Haskel reiterated the need for further interest rate hikes from the central bank.
Stronger-than-expected labour market data also bolstered the Pound as wage growth continues to accelerate at the fastest rate in 20 years.
Midweek and Sterling found more support as the UK economy returned to growth. Monthly GDP increased 0.2% in April after slumping 0.3% in March.
The Pound was then left to close out the week on elevated rate hike bets as GBP investors prepared for the latest rate decision from the BoE.
Meanwhile, the Canadian Dollar (CAD) came under increased pressure throughout the week amid a lack of economic data. With WTI crude oil prices slumping to multi-week lows, the commodity-linked ‘Loonie’ struggled for demand.
The positive correlation the ‘Loonie’ shares with the US Dollar (USD) didn’t prove so positive for the former as the ‘Greenback’ weakened considerably amid a dovish Federal Reserve.
Towards the end of the week, oil prices managed to stabilise above $71 a barrel. This helped CAD recoup some losses, but thin trading conditions capped gains.
Three Things to Watch Out for This Week
- BoE Interest Rate Decision
The British central bank is expected to raise rates once again, but GBP investors will be more focused on forward guidance. Hints at further tightening could rally the Pound.
- UK Inflation
An expected modest cooling to 8.4% isn’t likely to alter the BoE’s decision for Thursday, but a further-than-expected easing of inflation could temper rate hike expectations beyond the June meeting.
- Oil Prices
Concerns over China’s economic recovery could join supply-crunch woes and could keep the ‘Loonie’ under pressure.
Pound Canadian Dollar Forecast
Elsewhere, Canadian retail sales are due to show a return to growth after two months of disappointing data. Signs of a rebounding economy could provide modest support for the Canadian Dollar.