The Pound Canadian Dollar (GBP/CAD) exchange rate climbed sharply last week amid elevated rate hike bets from the Bank of England (BoE) and tumbling oil prices.
What’s Been Happening: GBP/CAD Rallied Despite Mounting UK Recession Fears
The Pound (GBP) found renewed strength through the week despite a lack of economic data. Fears of a looming recession did little to deter investors as expectations grew of another 50bps rate hike from the BoE.
Modest support for Sterling was provided as food inflation had finally showed signs of peaking. Hopes of the cost-of-living crisis easing could provide further tailwinds for the Pound on hopes of rebounding consumer spending.
Meanwhile, the Canadian Dollar (CAD) started the week with mixed success as rising oil prices were offset by downbeat manufacturing PMIs. A third straight month of contracting activity in the manufacturing sector highlighted ongoing uncertainty in the economic outlook.
End of the week and the ‘Loonie’ slid further as the jobless rate climbed higher than expected. Elsewhere, the latest Ivey PMI narrowly avoided contraction territory but still pointed to the weakest performance since December.
Oil prices proceeded to tumble amid waning demand and dragged the commodity-linked ‘Loonie’ lower as WTI Crude struggled to breach the $72 a barrel mark.
Three Things to Watch Out for This Week
- UK Economic Growth
An expected sharp decline in GDP growth could weigh on Sterling as the economy is expected to contract 0.3% in May.
- Bank of Canada Interest Rate Decision
After an unexpected hike in the June meeting, the market expects another 25bps raise, but a dovish outlook could dampen demand for the ‘Loonie’.
- Canada Inflation Rate
An easing of both headline and core inflation could temper rate hike bets, softening the ‘Loonie’.
Pound Canadian Dollar Forecast
Elsewhere, oil price dynamics could continue to play a major role in the Canadian Dollar. If WTI Crude continues its strong recovery, the Canadian Dollar could remain supported.