Pound to Canadian Dollar Outlook - GBP/CAD Exchange Rate Advances Strongly

January 26, 2015 - Written by Ben Hughes

STORY LINK Pound to Canadian Dollar Outlook - GBP/CAD Exchange Rate Advances Strongly

The Pound advanced against the Canadian Dollar after oil prices fell yet again and as Bank of England Monetary Policy Committee member Kristin Forbes suggested that UK interest rates could be raised sooner than expected.

Falling oil prices have weighed upon the Canadian Dollar for the past few months and continued to do so at the start of the week as a slight rise in prices at the end of last week was wiped out. Last week oil prices ticked higher due to the death of the King of Saudi Arabia. Market analysts had been speculating that the death of the Arab monarch could lead to an easing in oil production in OPEC members.

Oil then fell close to its weakest level in six years on signs that the new King of Saudi Arabia would maintain his predecessor’s production policy, increasing speculation that a global supply glut will persist and oil prices will remain low.

"Post Greek election Eurozone growth has renewed uncertainty coupled with Saudi Arabia's new king's commitment this morning to maintain the policies of his predecessor - meaning no tightening in sight of Opec oil supply," said Lewis Sturdy, sales trader at London Capital Group. "This has forced pressure once again on both WTI and Brent prices."

The Pound Sterling meanwhile found support from comments made by a Bank of England policy maker who hinted that interest rates could rise sooner than expected as falling food and tumbling oil prices are set to boost consumption in the UK economy.
‘If the risks that I’m focussing on to our last forecasts come through, I think there is a chance that inflation will pick up faster than people had been expecting in the medium term. Which then would most likely merit an increase in interest rates sooner than people are currently expecting,’ said Forbes in an interview with the Wall Street Journal.

Most economists are expecting the Bank of England to begin hiking interest rates at the end of this year or early 2016.
Forbes also suggested that the US Federal Reserve is likely to begin raising interest rates sooner than forecast as the world’s largest economy continues to go from strength to strength.

The Pound could make more gains later in the week if preliminary UK Gross Domestic Product (GDP) data comes in positively.

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