Bank of Canada’s Increased Dovishness Shores up Pound Canadian Dollar (GBP/CAD) Exchange Rate
In the wake of the Bank of Canada’s (BOC) unexpectedly dovish policy meeting the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate climbed to a one-month high.
While policymakers ultimately opted to leave interest rates on hold, in line with market expectations, comments from BOC Governor Stephen Poloz spooked investors.
As Poloz indicated that the door to an interest rate cut is still open this left the Canadian Dollar (CAD) under pressure as bets of a potential 2020 move picked up.
The general tone of the BOC’s commentary proved more cautious in nature, suggesting that growing slack within the economy could dampen inflationary pressure, encouraged speculation that rates could see a cut before the end of the year.
With confidence in the global economic outlook also limited thanks to the latest US tariff threats the GBP/CAD exchange rate benefitted from a general deterioration in risk appetite.
Underwhelming UK Manufacturing and Services PMIs May Drag on GBP Exchange Rates
Pound Sterling (GBP) could fall out of favour once again on Friday, however, if January’s UK manufacturing and services PMIs fail to impress.
With the manufacturing sector expected to spend another month in contraction territory worries over the health of the economic outlook look set to rise.
However, even if the manufacturing PMI remains weak this could be overshadowed by a positive service sector reading.
As the service sector remains the primary growth engine of the UK economy any renewed signs of strength here could ease worries over the first quarter gross domestic product.
Investors expect to see the services PMI pick up from 50 to 51, lifting the sector out of a state of stagnation and encouraging greater demand for the Pound.
If the index fails to strengthen as forecast, though, the GBP/CAD exchange rate could cede back some of its recent gains.
Stronger Retail Sales Figures Forecast to Boost Canadian Dollar Demand
The Canadian Dollar may find a rallying point ahead of the weekend, meanwhile, on the back of improved retail sales figures.
After the sharp monthly decline seen in October forecasts point towards a modest rebound in November’s sales data.
Any evidence that Canadian consumers are taking a more optimistic view could help to lift CAD exchange rates out of their slump.
On the other hand, another month of weaker consumer spending would cast a fresh shadow over the economic outlook.
A sustained deterioration in retail sales would offer the BOC fresh cause for concern, adding to expectations that an interest rate cut could be on the cards this year.
As long as markets see reason to doubt the strength of the Canadian economy the GBP/CAD exchange rate is likely to benefit.
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