The Pound Canadian Dollar (GBP/CAD) exchange rate fell over two cents last week, in the wake of the Bank of England’s (BoE) latest interest rate decision.
What’s Been Happening: GBP/CAD Plummets as BoE Leaves Rates on Hold
The GBP/CAD exchange rate got off to a poor start last week. The commodity-linked Canadian Dollar (CAD) strengthening amid a rise in oil prices. While the Pound (GBP) was muted ahead of the BoE’s rate decision later in the week.
The ‘Loonie’ then attracted further support with the publication of Canada’s consumer price index. August’s figures showed domestic inflation accelerated at a faster-than-expected pace, buoying Bank of Canada (BoC) rate hike bets.
In contrast, the UK’s own CPI figures printed below forecast. This triggered a sharp drop in Sterling as it upended BoE rate hike expectations.
The Pound selling bias was then reinforced as the BoE concluded its policy meeting and announced it would be leaving interest rates on hold for the first time in almost two years.
GBP exchange rates were then pressured at the end of the week after a worrying slump in UK service sector activity gave rise to fresh UK recession fears.
However, the GBP/CAD exchange rates was able to rebound from its worst levels as a pullback in oil prices undermined the Canadian Dollar.
Three Things to Watch Out for This Week
- Oil Prices
The Canadian Dollar is likely to remain sensitive to oil price dynamics this week. If prices continue to fall the ‘Loonie’ may lose a key pillar of support.
- Canadian GDP
Canada’s latest GDP figures are expected to report growth contracted month-on-month in August. Could this pull CAD exchange rates lower?
- UK GDP
GBP data is thin on the ground this week, with the only release of note being the UK’s own GDP figures. But barring another revision to second quarter growth, any impact on the Pound may be minimal.
Pound Canadian Dollar Forecast
The GBP/CAD exchange rate may also be driven by market sentiment this week. The increasingly risk-sensitive Pound could weaken if risk appetite continues to wane.