The Pound Canadian Dollar (GBP/CAD) exchange rate strengthened modestly last week despite growing fears that the Bank of England (BoE) could tip the UK into a recession.
What’s Been Happening: GBP/CAD Climbs despite UK Economic Uncertainty
The Pound (GBP) started the week on the back foot as retail sales volumes unexpectedly fell. Consumers are continuing to feel the effects of inflationary pressures as the reading marked a second consecutive month of declining sales.
A hawkish tone from BoE Governor Andrew Bailey failed to inspire GBP investors despite mounting expectations of further tightening. Fears of sky-high interest rates tipping the UK into a recession weighed on Sterling.
The end of the week saw the Pound recover as GDP growth confirmed the UK avoided a winter recession. Despite only increasing by 0.1%, the modest expansion cheered investors.
Meanwhile, the Canadian Dollar (CAD) opened the week strongly before the latest inflation data sapped demand. Annual headline CPI fell to 3.4% from 4.4%, the lowest since June 2021. Rapidly falling inflation saw rate hike bets pared for the ‘Loonie’.
Elsewhere, oil prices fluctuated wildly through the week, weighing on the commodity-linked Canadian Dollar. Midweek and WTI crude plummeted to $67 a barrel, denting the ‘Loonie’ before a sharp recovery buoyed the Canadian Dollar.
However, new GDP data showed the Canadian economy unexpectedly stalled in April, against expectations of 0.2% growth. Despite oil prices rebounding, downbeat economic growth softened the ‘Loonie’.
Three Things to Watch Out for This Week
- Canadian Ivey PMI
An expected fourth consecutive slowdown in economic activity could weigh on the Canadian Dollar amid persistent inflationary pressures.
- Canadian Unemployment Rate
The jobless rate is expected to climb to 5.3%, marking the second monthly rise in a row. A cooling labour market could further pare rate hike bets.
- UK Services PMI
A fifth consecutive month of growth in the sector could reassure investors of the economy’s resilience to soaring borrowing costs.
Pound Canadian Dollar Forecast
Elsewhere, the economic uncertainty surrounding the UK could keep a lid on Sterling as the BoE continues to grapple with sky-high inflation.