The Pound Canadian Dollar (GBP/CAD) exchange rate seesawed over the past week, as minimal data releases kept the focus on the UK’s poor economic outlook.
What’s Been Happening: Pound Undermined by UK Economy Woes
The Pound (GBP) started the week on the defensive, as bank holiday market closures prompted thin trading conditions for Sterling.
UK recession fears continued to simmer at the start of the week, which trimmed any of Sterling’s risk-associated gains.
Offsetting this were growing expectations of divergence between the Bank of England (BoE) and other central banks. The BoE is widely expected to keep tightening policy, while others are likely near the end of their interest rate hiking cycles.
Midweek brought the release of the latest UK consumer credit data, which showed a modest fall in spending. This yielded a mixed reaction, as UK households were seen to still be relying on finance amid the cost-of-living crisis.
On Thursday, a speech from BoE Chief Economist Huw Pill did little to inspire GBP investors, despite him reiterating the BoE’s need to cut inflation.
Ultimately, the UK’s darkening economic outlook kept Sterling muted as the week ended.
Meanwhile, the Canadian Dollar (CAD) largely traded in line with oil prices, due to the currency’s commodity-linked nature.
At the end of the week, the ‘Loonie’ crashed following news that the Canadian economy unexpectedly stalled in the second quarter, sparking recession anxieties.
Three Things to Watch Out for This Week:
- BoC Interest Rate Decision
On Wednesday, the Bank of Canada (BoC) is due to deliver their latest interest rate decision and is expected to keep interest rates level. Could a dovish hold dent CAD?
- Canadian Ivey PMI
Thursday brings the publication of Canada’s Ivey PMI for August. Economists are anticipating a recovery, potentially strengthening the ‘Loonie’.
- Risk Appetite
Due to a light data calendar, GBP will likely be left vulnerable to shifts in the market mood. Bullish trade could boost Sterling.
GBP/CAD Outlook
Furthermore, Friday’s Canadian unemployment rate may bring fresh volatility to the pairing. Economists have forecast an increase, which could weaken the ‘Loonie’ by suggesting a slowing jobs market.