Recent Canadian data has been underwhelming, so Pound Canadian Dollar investors are highly anticipating Wednesday’s Bank of Canada (BOC) policy decision to see if the bank’s outlook on Canada’s economy has changed. Sterling could be influenced by upcoming UK growth data.
GBP CAD began this week trending at 1.6646. Poor Canadian data helped the pair briefly touch an October high of 1.6714 on Tuesday before the pair slipped back down to 1.66.
Bank of England (BoE) Speculation Takes Focus in Pound (GBP) Trade
Markets are becoming less hopeful that the Bank of England (BoE) will follow through with its recent hawkish tone, following some cautious comments from BoE Deputy Governor Sir Jon Cunliffe on Tuesday.
Cunliffe expressed uncertainty about the possibility of the bank hiking UK interest rates in November’s interest rate decision, saying it remained an ‘open question’.
He stated that the British economy had definitely slowed over the last year.
With the Bank of England’s (BoE) November policy decision now just over a week away, this weighed heavily on bets of a November interest rate hike and the Pound saw weaker performance.
He also discussed the effects that the Brexit process could have on London as a financial centre;
‘We have a responsibility for financial stability and we have got to know what the banks are planning, but not just the banks that are thinking of moving activity to the European Union, but also the plans of the EU banks that operate in the UK that will need to be authorised to operate in the UK after we leave.’
Overall, Cunliffe’s comments made markets doubt that the BoE was ready to hike UK interest rates as soon as next week.
Still, that could change if Britain’s Q3 ecostats beat expectations. Britain’s Q3 Gross Domestic Product (GDP) projections will be published on Wednesday.
UK growth is forecast to have remained at 0.3% quarter-on-quarter and have slipped from 1.5% to 1.4%.
If UK growth beat expectations in Q3, it would boost hopes that Britain’s economy has been performing better than expected. This would cause market speculation of a November interest rate hike to rise again and the Pound would strengthen.
Still, if the BoE doesn’t hike UK interest rates in next week’s meeting or indicate that one is on the way soon, the Pound outlook will worsen.
Canadian Dollar (CAD) Firms as Investors Anticipate Bank of Canada (BOC) Meeting
The Canadian Dollar saw stronger trade on Tuesday, but this was largely due to weakness in the Pound as well as market anticipation for the Bank of Canada’s (BOC) upcoming monetary policy decision.
The BOC will hold its October policy decision on Wednesday and investors are concerned that officials will take a more dovish tone this month in response to recent underwhelming inflation stats.
Canada’s September Consumer Price Index (CPI) report fell short of expectations month-on-month, coming in at 0.2% rather than 0.3%.
While inflation improved after August’s print as expected, the slow improvement could be a concern to BOC policymakers.
The bank surprisingly hiked Canada’s interest rates twice throughout the summer, amid expectation that inflation would soar in 2018.
However, the recent inflation stats have caused some to worry that the bank may have overestimated the strength of inflation. They also weighed on market bets for one more 2017 rate hike from the BOC, which weakened Canadian Dollar demand last week.
Still, amid a lack of Canadian data on Tuesday, investors firmed their positions ahead of Wednesday’s session.
If the BOC takes a more optimistic than expected stance in Wednesday’s policy decision, the Pound to Canadian Dollar exchange rate will drop and bets will rise that the BOC could hike interest rates again within the coming months.
A dovish stance from the bank would worsen fears that the bank may have acted too soon on this year’s rate hikes.
Overall, it seems like central bank speculation will be driving the Pound Canadian Dollar outlook in the coming week.
GBP CAD Interbank Rate
At the time of writing this article, the Pound Canadian Dollar exchange rate trended in the region of 1.6625. The Canadian Dollar to Pound exchange rate traded at around 0.6009.