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Pound to Canadian Dollar Exchange Rate Forecast: GBP/CAD Recovery Outlook Limited Despite Slowing Canadian Inflation

Canadian Dollar Currency Forecast

Pound to Canadian Dollar Exchange Rate Edges Away from Worst Levels on Canadian Inflation Slowdown

Updated 14:27 BST 20/04/2018:

Canada’s March Consumer Price Index (CPI) results were disappointing on Friday, but despite this the Pound to Canadian Dollar (GBP/CAD) exchange rate is still on track to see its fifth consecutive week of losses.

Canadian inflation was forecast to slip to 0.4% month-on-month but instead slowed from 0.6% to 0.3%. The yearly rate only advanced from 2.2% to 2.3%, rather than meeting the forecast 2.4%.

However, the Pound’s (GBP) gains against the Canadian Dollar (CAD) were still limited due to broad Sterling weakness, as well as a solid Canadian retail sales report.

As Canada’s retail sector had seen mixed performance in recent months, news that retail sales beat expectations in February helped to support Canadian Dollar trade.

Overall, while the data didn’t impact Bank of Canada (BoC) interest rate hike bets much, the Pound to Canadian Dollar exchange rate’s recovery was still limited.

GBP/CAD trended near the level of 1.7835 on Friday afternoon.

[Published 11:09 BST 20/04/2018]

Pound to Canadian Dollar Exchange Rate Hits Monthly Lows Ahead of Canadian Inflation Report

A combination of underwhelming UK data and perceived dovishness from the Bank of England (BoE) has left the Pound to Canadian Dollar (GBP/CAD) exchange rate on track for its fifth consecutive weekly fall.

After opening this week at the level of 1.7944, GBP/CAD briefly climbed to a high of 1.8055 but tumbled towards the end of the week. On Friday morning, GBP/CAD was trending near its lowest level in a month – 1.7787.

The Pound (GBP) saw significant losses this week as Bank of England (BoE) interest rate hike bets fell, due to disappointing UK inflation and a cautious tone from the BoE Governor.

However, the Canadian Dollar (CAD) still has time to weaken again before the end of the week if Canadian inflation data is disappointing and weakens Bank of Canada (BoC) interest rate hike bets too.

Pound (GBP) Outlook Plunges as Bank of England (BoE) Interest Rate Hike Bets Fall

The Pound has become a lot less appealing to investors over the past week. Underwhelming UK inflation results and a cautious tone from Bank of England (BoE) Governor Mark Carney caused BoE interest rate hike bets to fall and this weighed on Sterling.

Carney offered comments on his view of the UK monetary policy outlook on Thursday evening, in which his caution was perceived as dovishness.

The bank had recently been indicating that a May interest rate hike was likely, so Carney instead being vague on the possibility of a May rate hike was a dovish shift.

He also indicated that the timing of upcoming UK interest rate hikes was unimportant, which weighed further on hopes that a rate hike was on the way in May. According to Carney:

‘I don’t want to get too focused on the precise timing, it is more about the general path. …

We’ll sit down calmly and look at it all in the round. I am sure there will be some differences of view but it is a view we will take in early May, conscious that there are other meetings over the course of this year.’

Still, Sterling recovered slightly from its worst levels later on Thursday morning as BoE policymaker Michael Saunders played down the importance of Carney’s comments.

He also said the bank did not intend to give signals on the precise timing of UK interest rate hikes, indicating that a May rate hike may still be on the cards despite Carney’s cautious tone.

Canadian Dollar (CAD) Benefits from Trade Hopes Ahead of Canadian Inflation Report

While this week’s Bank of Canada (BoC) policy decision was seen as more dovish and cautious than expected, the Canadian Dollar has still climbed against a weakened Pound.

Demand for the Canadian Dollar has been quite limited in recent sessions due to BoC dovishness and falling prices of oil, Canada’s most lucrative commodity.

Essentially, GBP/CAD losses have been more due to broad Pound weakness than Canadian Dollar strength.

Still, the Canadian Dollar has found some support this week, largely due to trade developments and risk-sentiment.

While oil prices fell towards the end of the week, this had been after the commodity touched on its highest prices in over three years on Wednesday and Thursday.

On top of this, investors are becoming increasingly hopeful that the North American Free Trade Agreement (NAFTA) renegotiations will end successfully.

Pound to Canadian Dollar (GBP/CAD) Forecast: Central Bank Speculation in Focus

Friday’s Canadian inflation and retail sales results are likely to influence market speculation on how soon the Bank of Canada (BoC) could hike Canadian interest rates again.

If Bank of Canada interest rate hike bets rise, the Pound to Canadian Dollar (GBP/CAD) exchange rate is likely to see further losses before markets close for the week.

The next week’s economic calendar won’t be quite as busy, save for UK growth rate projections next Friday.

As a result, GBP/CAD is likely to continue trending largely in reaction to central bank speculation or comments.

Any comments from BoE officials regarding the possibility of a UK interest rate hike in May is likely to influence Pound movement. GBP/CAD would strengthen if May interest rate hike bets rise again.

Overall, the Pound to Canadian Dollar (GBP/CAD) exchange rate is lower due to falling BoE interest rate hike bets, but strong UK data or BoE hawkishness could improve the exchange rate’s forecast again.