Signs of BoE Optimism Fuel Pound Canadian Dollar Exchange Rate Gains
In the wake of the Bank of England’s (BoE) policy announcement the Pound to Canadian Dollar (GBP/CAD) exchange rate rallied sharply.
As the central bank indicated that the fourth quarter could see a stronger economic performance than initially thought this helped to drive renewed demand for Pound Sterling (GBP).
Investors also took significant encouragement from the fact that policymakers downplayed the possibility of negative interest rates once again.
With the BoE looking increasingly unlikely to consider cutting interest rates into negative territory in the months ahead the appeal of the Pound naturally improved.
A general weakening in market risk appetite left the Canadian Dollar on a weaker footing against its rival, meanwhile.
Rising Unemployment Rate Forecast to Drag Canadian Dollar Lower
The mood towards the Canadian Dollar could sour further on Friday with the release of January’s raft of Canadian labour market data.
With forecasts pointing towards an uptick in the headline unemployment rate at the start of 2021 support for CAD exchange rates looks set to weaken.
If the unemployment rate picks up to 8.9% worries over the health of the labour market, and the wider Canadian economy, are likely to mount once again.
Market confidence could take an even stronger blow if this rise in unemployment is accompanied by a weaker participation rate as forecast.
Evidence that even fewer Canadians are now active within the labour market would cast fresh doubt over the strength of the economic outlook, leaving the Canadian Dollar vulnerable to increased selling pressure.
On the other hand, a narrowed December trade deficit may still help to limit the potential for any major CAD exchange rate losses ahead of the weekend.
Softer UK Housing Price Index Set to Limit GBP/CAD Exchange Rate Upside
Support for the Pound, meanwhile, could weaken in the face of the January’s Halifax house price index.
As other recent data from the housing market has pointed towards a weakening in demand this could leave the GBP/CAD exchange rate on the back foot.
Any fresh evidence of the UK housing market losing some of its 2020 momentum could put a dampener on the wider outlook.
Given that sustained levels of activity within the housing market helped to cushion some of the impact of the Covid-19 crisis any slowdown here could put pressure on the Pound.
However, if house price growth continues to show solid improvement on the month the Pound to Canadian Dollar exchange rate may well hold onto its bullish footing at the end of the week.
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