OECD Upgrades UK Growth Forecast – Pound Canadian Dollar (GBP/CAD) Exchange Rate Fails to Capitalise
The outlook for the Pound Canadian Dollar (GBP/CAD) exchange rate worsened on Wednesday as investors responded to some rather hawkish remarks in the Bank of Canada’s latest policy statement, and contrasting words of caution in the OECD’s latest assessment of the British economy.
The influential Organisation for Economic Cooperation and Development (OECD) might have upgraded the UK’s growth forecasts – with 1.4% expected this year (up from 1.2%) and 1.3% next year (up from 1.1%) – but they also highlighted various risks globally and in the UK.
These included concerns regarding how well the UK’s economy will handle the Brexit process and other global factors, like the possibility of a trade war and destabilised financial markets.
OECD Secretary General Angel Gurria surmised:
‘The economic expansion is set to continue for the coming two years, and the short-term growth outlook is more favourable than it has been for many years. However, the current recovery is still being supported by very accommodative monetary policy and increasingly by fiscal easing. This suggests that strong, self-sustaining growth has not yet been attained’.
Bank of Canada Acknowledges Greater Need for Monetary Tightening – Canadian Dollar (CAD) Exchange Rates Rise
The outlook for the ‘Loonie’ (CAD) improved substantially on Wednesday when the Bank of Canada announced their latest policy decision.
Whilst the central bank did not raise interest rates on this occasion (as expected), their accompanying statement highlighted that higher interest rates could be warranted in future in order to keep up with rising inflation levels.
The statement read:
‘Overall, developments since April further reinforce the Governing Council’s view that higher interest rates will be warranted to keep inflation near target. The Governing Council will take a gradual approach to policy adjustments, guided by incoming data’.
This outlook was, to a certain extent, driven by the recent surge in crude oil prices – Canada’s primary export – which should massively contribute to Canadian inflation in the next reading.
Pound Canadian Dollar (GBP/CAD) Exchange Rate Forecast: BoE Rate Rise Expectations and Canadian GDP on the Horizon
The Pound Canadian Dollar (GBP/CAD) exchange rate could see substantial gains later this year if the Bank of England (BoE) moves for a rate rise in August.
Given the strength of the UK’s labour market and the recent recovery in retail sales, analysts are beginning to price in the possibility of a rate hike in August – with some groups putting the chances as high as 50/50.
This will, however, be entirely dependent on UK data between now and then remaining positive, but given the UK’s latest soft consumer price inflation print, many are still quite sceptical.
For the Canadian Dollar, tomorrow will feature the latest Canadian GDP readings, with growth expected to rise in the first quarter from 1.7% to 1.9%.
If this occurs then we could see GBP/CAD extend its fall into the week’s end.
Comments are closed.