Pound Canadian Dollar (GBP/CAD) Exchange Rate Rebounds as GDP Misses Forecast

GBP/CAD Exchange Rate Firms as Canadian Data Disappoints

(Updated 17:30, 28/07/2023) The Pound Canadian Dollar (GBP/CAD) exchange rate trended up this afternoon despite Sterling weakness in other exchange rates, as a disappointing GDP release from Canada weighed upon the ‘Loonie’.

While May’s data printed as expected, June’s preliminary reading revealed a contraction of 0.2%. The unexpected reversal of economic growth indicates that interest rates may be having a stronger effect on finances than formerly anticipated, potentially persuading the Bank of Canada (BoC) to hold interest rates at its next meeting.

Further depressing the Canadian Dollar may be erratic crude oil prices: the black gold appreciated earlier today, but subsequently devalued. Economists speculate this may be due to the US Federal Reserve and the European Central Bank raising interest rates, thereby stoking fears of weaker long-term demand.

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Pound Canadian Dollar (GBP/CAD) Exchange Rate Subdued, GDP Data Awaited

The Pound Canadian Dollar exchange rate traded in a narrow range this morning, struggling to recover yesterday’s losses in the wake of abysmal UK retail data. Canadian Dollar (CAD) investors are on tenterhooks ahead of this afternoon’s Canadian GDP release and are trading bearishly amid hopes of modest economic growth.

At the time of writing, GBP/CAD is trading at C$1.7019, beginning to inch higher as the day unfolds.

Pound (GBP) Remains Pressured amid Lack of Data

The Pound (GBP) is trading sideways against several of its peers today, as a lack of significant UK data leaves the currency exposed to external factors.

Following Sterling’s sharp downtrend yesterday, economists at UOB Group observe ‘further GBP weakness is not ruled out’; however, the Pound is nevertheless enjoying moderate tailwinds in some exchange rates on account of hopeful expectations for the Bank of England (BoE).

While the UK’s housing sector, factory activities, and retail orders are suffering under current interest rates, analysts insist that the BoE is in a bind. According to reporters, the central bank is unable to pause the rate-hiking trend due to inflationary pressures being four times the desired 2%.

As the Bank of England prepares to raise interest rates for the 14th consecutive time, members of the UK’s Economic Advisory Council have warned UK Chancellor Jeremy Hunt that successive rate hikes risk triggering a recession. Such fears may be capping GBP gains even as the prospect of better returns for Sterling investors lends support.

Nevertheless, Hunt’s stance appears unchanged since a statement he made in February, announcing:

‘If we want to have prosperity, to grow the economy, to reduce the risk of recession, we have to support the Bank of England in the difficult decisions that they take.’

Canadian Dollar (CAD) Muted Ahead of GDP Release

The Canadian Dollar is currently trading in a narrow range, as ‘Loonie’ investors await this afternoon’s GDP release.

The Canadian economy is expected to have grown by 0.3% in May, with economists predicting a further 0.1% of growth in June. While small, such indicators of economic expansion will likely be reassuring to Canadian Dollar traders given fears of recession elsewhere.

Furthermore, such an outcome would suggest that monetary policy tightening from the Bank of Canada has not jeopardised economic growth so far, potentially tempting BoC policymakers to enact another interest rate hike in September.

Presently, reports suggest that the central bank is divided over whether to keep rates on hold, given that inflation softened by more than expected in June. Previous discussions amongst bank officials show that the BoC’s recent hike was touch-and-go, as Wednesday’s summary of deliberations revealed:

‘The discussion turned to whether it was appropriate to raise the rate in July or wait for more evidence to solidify the case for further tightening. The consensus among members was that the cost of delaying action was larger than the benefit of waiting.’

GBP/CAD Forecast: GDP Release to Influence BoC Interest Rate Expectations

The Pound Canadian Dollar exchange rate may trend up or down this afternoon depending upon Canada’s GDP data. If the release prints as expected, GBP/CAD is likely to tumble as the ‘Loonie’ benefits from the country’s economic growth; on the other hand, a surprise lack of growth or a contraction would probably subdue CAD, buoying the Pound Canadian Dollar exchange rate.

Elsewhere, data from the US may affect GBP/CAD. If the Federal Reserve’s preferred measure of inflation – the PCE consumer price index – falls as expected, the prospect of a more dovish Fed could inspire risk-on tailwinds, boosting Sterling against its perceived-riskier peers.

Olivia Evershed

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