Pound Canadian Dollar (GBP/CAD) Exchange Rate Slips as BoE Expected to Slash Rates
The Pound Sterling Canadian Dollar (GBP/CAD) exchange rate slipped, leaving the pairing trading at around CA$1.6946.
A lack of significant data from the UK and Canada caused market attention to shift to the monetary policy outlook for the UK.
Sterling fell as investors grew cautious ahead of this month’s Bank of England (BoE) meeting.
Markets predict the bank will cut rates, especially if UK business surveys data due to be released later in the week provide a further bout of disappointment.
Expectations the bank will slash rates has increased from a 10% chance of a quarter-point cut to around a 70% chance over the course of a week.
Rising Oil Prices Buoys Canadian Dollar (CAD)
At the start of the week, the ‘Loonie’ edged higher as trading volumes were thin as US markets remained closed for Martin Luther King Day.
However, rising oil prices have provided the Canadian Dollar with a slight boost at the start of the week.
Oil prices rose to the highest in more than a week as two crude production bases in Libya began closing amid a military blockade.
Commenting on this, National Australia Bank’s head of commodity research, Lachlan Shaw said:
‘If this sort of disruption endures, it’s meaningful […] the market is right to be reacting with a bullish tone.
‘It just continues to emphasise, notwithstanding that the world market is clearly in surplus and there are plenty of stocks, the fact that the market still depends on a number of key regions that have heightened geopolitical risk.’
In the last two weeks, oil prices fell back after an outbreak of hostilities between the US and Iran sparked a jump. After both sides pulled back from conflict this caused the mood to calm.
UK Household Confidence in Finances Increases to One-Year High
Sterling edged lower against the Canadian Dollar despite a gauge of UK household finances hitting a one-year high this month.
This added to signs that consumer sentiment improved following Prime Minister Boris Johnson’s election win in December.
IHS Markit’s Household Finance Index increased from 43.2 to 44.6 in January.
Commenting on this, Markit economist, Joe Hayes said:
‘Latest survey data certainly show some post-election bounce for UK households, with the headline index up to a one-year high and house price expectations at their strongest since October 2018.’
Pound Canadian Dollar Outlook: Focus to Shift to BoC Rate Decision
Looking ahead to Tuesday, the Pound (GBP) could slide further against the Canadian Dollar (CAD) following the release of UK employment data.
If UK employment data disappoints and wage growth comes in below forecast, Sterling will slide.
Meanwhile, the pairing could be left flat as the focus shifts to Wednesday’s Bank of Canada (BoC) interest rate decision.
While the bank is likely to leave rates unchanged, if the BoC’s monetary policy report is overly dovish, the Pound Canadian Dollar (GBP/CAD) exchange rate could remain muted.