Pound Canadian Dollar (GBP/CAD) exchange rate trends up on hawkish BoE
The Pound Canadian Dollar (GBP/CAD) exchange rate continues to trade gradually higher this morning following yesterday’s interest rate decision and commentary from the Bank of England (BoE). Upbeat manufacturing data from Canada gave the Canadian Dollar (CAD) a short-lived boost but the currency remained pressured by fluctuating oil prices.
At the time of writing, GBP/CAD is trading at C$1.7058, having firmed by almost 0.3% in the past 24 hours.
Pound (GBP) retains gains despite empty docket
The Pound (GBP) is trending higher still against several of its peers, making significant gains against the US Dollar (USD) in particular as investors continue to digest yesterday’s interest rate decision.
The BoE took a notably hawkish stance, setting itself apart from the more dovish Federal Reserve as policymakers refused to speculate over when rate cuts would begin. The monetary policy divergence between the two central banks supports the Pound in this instance.
Against other currencies however, Sterling appeal is limited. A lack of significant UK data today leaves the currency to trade upon risk sentiment and other external factors. Moreover, traders are forced to consider the drawbacks to the Bank of England’s higher-for-longer monetary policy stance.
Notably, higher interest rates are expected to worsen the UK’s labour market conditions: the BoE predicts unemployment will rise to 5% by the end of 2026. Additionally, the economic outlook in the UK is more vulnerable to setbacks from waning business optimism.
Despite the BoE’s vocal commitment to bringing inflation lower, public inflation expectations are also at a 9-month high. Citi economist Benjamin Nabarro comments:
‘This month, we think reporting around shipping disruption, as well as risks to energy supplies, have probably driven these data higher.’
Canadian Dollar (CAD) pressured despite oil price uptick
The Canadian Dollar is facing mixed trading stimuli today and consequently trades in a choppy range against its peers. Yesterday, the currency enjoyed fleeting tailwinds as Canada’s manufacturing PMI surprised to the upside; rather than easing as expected, activity increased by almost 3 points in January.
Today, however, the ‘Loonie’ is unable to take full advantage of an upswing in the value of WTI crude oil. Other tailwinds include an increase in Canadian GDP reported earlier in the week; economists speculated that signs of resilience in the country’s economy could push back interest rate cut bets for the Bank of Canada (BoC).
The recent uptick in oil prices is believed to be linked to the possibility of a ceasefire agreement between Israel and Hamas leaders, the fulfilment of which would reduce geopolitical tensions globally. Since Hamas’s attack on Israel on October 7 and Israel’s retaliatory war on Gaza, the international community has grappled with political and humanitarian concerns as well as the disruption of trade routes across the Red Sea in response to the West’s support of Israel.
The situation is tenuous, however, given a reluctance to compromise on both sides. Moreover, deepening economic risks in China threaten the demand outlook ahead: China is the world’s largest importer of oil.
GBP/CAD forecast: US data to drive momentum?
The Pound Canadian Dollar exchange rate is likely to trade today upon US data, given the lack of stimuli from both the UK and Canada.
The latest US employment release will be published at 13:30 UTC and is expected to reveal that the US economy added fewer jobs in January than in the previous month. The country’s unemployment rate is also expected to have risen.
If the data prints as expected, the ‘Greenback’ is likely to extend its current downtrend. Signs of weakness in the world’s largest economy generally inspire risk-off trade, potentially buoying GBP/CAD further through today’s session.
Nevertheless, evolving oil dynamics and speculation over the UK’s inflation outlook could also influence the direction of the Pound Canadian Dollar exchange rate.