The Pound Canadian Dollar (GBP/CAD) exchange rate weakened last week, as investors readjusted their bets on further tightening from the Bank of England (BoE).
What’s Been Happening: Pound Weakens amid Dovish BoE Remarks
The Pound (GBP) began last week on firm footing, as a bullish market mood lifted the increasingly risk-sensitive currency.
On Tuesday, these gains were erased following confirmation of a contraction in the UK service sector. Furthermore, the market mood began to sour, yielding further pressure.
Further weakness came midweek after dovish comments from Bank of England Governor Andrew Bailey. In a testimony to the UK Treasury committee, Bailey stated that the BoE was nearing the peak of its tightening cycle.
Through to the end of the week, GBP was unable to recover as investors continued to pare back their bets on further interest rate hikes.
Meanwhile, the Canadian Dollar (CAD) strengthened on Tuesday following additional oil production cuts from Saudi Arabia and Russia. This saw oil prices hit a ten-month high, boosting the crude-linked ‘Loonie’.
However, volatility struck oil prices over the week, which prompted turbulence in CAD exchange rates.
The Bank of Canada (BoC) interest rate decision midweek did little to move the currency pairing, with the BoC pausing as expected.
At the end of the week, upbeat Canadian unemployment data saw CAD close the session strongly.
Three Things to Watch Out for This Week:
- UK GDP
On Wednesday, July’s UK GDP data is scheduled to print. Economists are anticipating a 0.2% contraction, which may weigh heavily on GBP if it stokes recession fears.
- UK Wage Growth
This morning, wage growth in the UK remained at record levels in July. This could bring volatility through the week and may prompt additional tightening bets.
- Oil Prices
The commodity-linked ‘Loonie’ may see further instability over the week if oil prices continue to trade in wide boundaries.
The GBP/CAD exchange rate is also likely to remain sensitive to shifts in risk appetite. If markets remain upbeat, this could underpin the pairing throughout the week’s session.