The Pound Canadian Dollar (GBP/CAD) exchange rate softened considerably last week as recession fears offset a hawkish 50bps rate hike from the Bank of England (BoE).
What’s Been Happening: GBP/CAD Dips on Mounting UK Recession Fears
The Pound (GBP) started the week on the front foot as investors braced for the BoE’s interest rate decision.
The first shock of the week came when inflation remained unchanged at 8.7%, as underlying core inflation accelerated to a 31-year high. Despite bolstered expectations of the BoE continuing to tighten policy, concerns about the UK’s economic outlook dampened GBP’s appeal.
The BoE then delivered a hawkish 50bps raise bringing interest rates to 5%, the highest since April 2008. However, fears of the central bank’s aggressive tightening cycle tipping the UK into a recession weighed heavy.
End of the week and stronger-than-expected UK retail sales helped limit further losses. Against expectations of a 0.2% decline, sales rose by 0.3%.
Meanwhile, the Canadian Dollar (CAD) opened the week under pressure as WTI crude prices slipped. However, the positive correlation CAD shares with the US Dollar (USD) saw the ‘Loonie’ avoid further declines.
Midweek and the Canadian Dollar climbed as the retail sector returned to growth. Hawkish minutes from the last Bank of Canada (BoC) policy meeting also buoyed CAD investors.
At week’s end, oil prices tumbled below $70 a barrel amid a souring global market mood but the ‘Loonie’ shrugged off these pressures and ended the week strongly.
Three Things to Watch Out for This Week
- Canadian Inflation Rate
An expected easing from 4.4% to 3.4% could pare further rate hike bets from the BoC, sapping demand for the ‘Loonie’.
- BoE Speeches
A flurry of BoE policymaker speeches could boost Sterling if hawkish tones are struck, but fears of a recession could prompt more cautious rhetoric.
- Canadian GDP Growth
After stagnating in March, a return to modest economic growth could cheer CAD investors.
Pound Canadian Dollar Forecast
Elsewhere, fears of a looming UK recession could keep the Pound under pressure. A shaky British economy with stubbornly high inflation could deter GBP investors.