The Pound Canadian Dollar (GBP/CAD) exchange rate fluctuated last week, as bets on central bank divergence lifted GBP.
What’s Been Happening: GBP Strengthens on Growing Central Bank Divergence
Disappointing private sector indexes saw the Pound (GBP) stumble out of the gates last week, amid signs of a stalling economy.
This weakness was reversed towards the middle of the week, following strong data from the Confederation of British Industry (CBI). On Tuesday, a recovery in business confidence brought cheer to GBP investors, alongside bullish trade.
Focus then shifted to the Bank of England (BoE), as expectations of divergence between the major central banks grew. The BoE are expected to hike rates by 25bps this week, but the potential for further hikes served to keep Sterling afloat.
However, volatile trade struck the Pound at the end of the week, as the CBI found that UK retail sales had fallen rapidly.
Meanwhile, a lack of impactful data kept the focus on oil price fluctuations for the crude-linked Canadian Dollar (CAD).
Prices seesawed over the week, but began to steadily climb, culminating in WTI crude punching through the $80 mark.
However, the ‘Loonie’ was unable to keep this momentum following the latest GDP data. The Canadian economy was found to have shrunk over June, prompting recession anxieties.
Three Things to Watch Out for This Week
- BoE Interest Rate Decision
On Thursday, the BoE are expected to enact a 25bps hike. If they elect to accompany this with hawkish forward guidance, Sterling could rally.
- Canadian Unemployment
Friday brings the release of Canada’s latest jobs report. Economists forecast unemployment will have risen in July. This could dent CAD by indicating a weakening labour market.
- Ivey PMI
The latest Canadian private sector data is forecast to indicate a contraction, which may weigh on the ‘Loonie’.
Oil price dynamics may also continue to influence the pairing, due to the ‘Loonie’s crude-linked nature. With prices flourishing thus far this week, CAD has gained ground against its peers. Could further increases continue this strength?