Confidence in the Pound has been somewhat muted as a result of June’s trio of weaker-than-expected PMIs, which pointed towards a loss of momentum within the domestic economy.
This undermined market bets that the Bank of England (BoE) could raise interest rates in the near future, increasing the incentive for policymakers to sit tight on monetary policy.
If the UK economy continues to demonstrate signs of slowness this could weigh heavily on the appeal of Sterling, particularly as the issue of Brexit casts a shadow over the economic outlook.
The prospect of any BoE rate hike could diminish further if Friday’s raft of production and trade data fails to encourage investors.
The NIESR gross domestic product estimate for the three months to June may also put increased pressure on the Pound Canadian Dollar exchange rate, with further signs of slowing likely to extend its recent losses.
Bets on BoE tightening are unlikely to offer any particular support to Sterling, as Jane Foley, Senior FX Strategist at Rabobank, noted:
‘Insofar as the BoE attributes the current spike in CPI inflation to last’s year drop in the Pound, it is reasonable to assume that further Sterling weakness would not be welcome by the MPC. This would risk a further increase cost push inflation, a more erosion of real incomes and softer consumption levels. As a consequence, we expect that the BoE will produce further hawkish signals in the coming months even though we do not expect a rate rise unless GBP plunges once again.’
CAD Under Pressure Ahead of Canadian Employment Data
The Canadian Dollar struggled to find any particular traction against rivals on Thursday, meanwhile, even as oil prices recovered some of their recent losses.
Risk appetite remained generally limited ahead of the highly-charged G20 summit in Hamburg, especially as geopolitical tensions continued to mount in response to North Korea’s missile testing.
This limited the appeal of the commodity-correlated ‘Loonie’, although markets still anticipate an interest rate hike from the Bank of Canada (BOC) in the coming months.
Greater downside pressure could be in store for the GBP CAD exchange rate if June’s raft of Canadian labour market data proves positive.
Continued signs of strengthening within the Canadian economy would give BOC policymakers further cause for confidence, boosting the odds of an imminent return to tighter monetary policy.
However, if the number of those in employment fails to rise markedly this could prompt the Canadian Dollar to trend lower.
Any negative developments in the oil market are also likely to boost the GBP CAD exchange rate in the near term.