The Pound Canadian Dollar (GBP/CAD) exchange rate whipsawed last week, following a dovish hike from the Bank of England (BoE).
What’s Been Happening: GBP Seesaws amid Dovish BoE Rate Hike
The Pound (GBP) began last week on firm ground, with trade remaining calm ahead of the Bank of England’s latest interest rate decision.
On the other hand, Sterling’s upside potential was tempered by UK recession jitters in the wake of July’s final manufacturing PMI.
The BoE then hiked interest rates by 25bps on Thursday, in line with market forecasts. The accompanying forward guidance struck a dovish chord, which initially trigger a sharp GBP selloff. These losses were quickly reversed by a hawkish press conference from BoE Governor Andrew Bailey.
The gloomy economic outlook continued to weigh against the Pound, before it found some respite thanks to a sharp improvement in risk appetite at the end of the week.
Meanwhile, the Canadian Dollar (CAD) traded in tandem with oil prices over the past week. Additional support was found from its close correlation to the US Dollar.
Three Things to Watch Out for This Week:
- UK GDP
Friday see the publication of latest UK GDP data for the second quarter, with economists anticipating a stall. This may weigh heavily on Sterling.
- CA Balance of Trade
Later today, Canada’s trade data for July is due to print. An expected narrowing of the country’s trade deficit could strengthen CAD.
- Oil Prices
As a crude-linked currency, the ‘Loonie’ is likely to be driven by volatility in oil prices. If they remain in flux, it may limit CAD’s appeal.
Elsewhere, impactful American data is due towards the end of the week, which could benefit the Canadian Dollar. The two share a close correlation – if the ‘Greenback’ strengthens, the ‘Loonie’ is likely to follow suit.