GBP to CAD Exchange Rate Rises as Bank of England (BoE) Governor Surprises Traders

June 28, 2017 - Written by Tim Boyer

STORY LINK GBP to CAD Exchange Rate Rises as Bank of England (BoE) Governor Surprises Traders

Investors sold the Canadian Dollar last week as Canada’s latest inflation data fell short of expectations. However, CAD demand improved again this week following more hawkish comments from Bank of Canada (BOC) Governor Stephen Poloz.

Due to economic uncertainty in Britain and mixed commodity data, GBP/CAD briefly tumbled to a new weekly low of 1.6767 on Wednesday. However, following surprising Bank of England (BoE) comments in the afternoon the pair advanced past the week’s opening levels of 1.6867 again.

GBP Rises on Bank of England (BoE) Split

After last week’s dovish comments from Bank of England (BoE) Governor Mark Carney and hawkish comments from BoE chief economist Andy Haldane, another BoE official has offered up his thoughts on UK monetary policy.

BoE Deputy Governor Jon Cunliffe argued this week that economic pressure in Britain would not support higher interest rates and said he was not able to justify an increase in rates.

Cunliffe said he wanted to see how the current wage squeeze on UK households plays out, but he currently believes higher borrowing rates would worsen the situation.

Analysts initially predicted that unless things do not change before the August BoE policy meeting, the BoE could be heating for another 5-3 vote split or even a 4-4 split.

However, the Pound surged on Wednesday afternoon following surprising comments from BoE Governor Mark Carney.

Carney held a speech at the European Central Bank’s (ECB) Forum in Portugal on Wednesday and indicated that lightening the bank’s aggressive UK quantitative easing (QE) scheme could become necessary.

Following his dovish comments last week this tone was highly surprising to markets. BoE tightening bets increased and investors quickly bought up the Pound.

CAD Stronger as BOC Governor Remains Confident

The Canadian Dollar tumbled last week when Canada’s May inflation results were published and came in well below expectations.

Month-on-month inflation was expected to slow from 0.4% to 0.2% but came in at an even lower 0.1%. Year-on-year inflation dropped below the projected 1.5%, slowing from 1.6% to just 1.3%.

This weighed on Bank of Canada (BOC) interest rate hike bets.

However, this week BOC interest rate hike bets increased once again as Bank of Canada Governor Stephen Poloz once again took an optimistic tone towards Canada’s economic outlook.

On Wednesday morning, Poloz stated;

‘It's pretty encouraging. We have had over six months of pretty steady, and in fact in the first quarter, really strong growth, surprisingly so… We do think it's going to moderate from there, not to slow down dramatically but to be more normal on pace, but still above potential,

That's the important thing. It means that we're absorbing excess capacity that was built up in the wake of the crisis and then built up again in the wake of the oil shocks a couple of years ago.’

Poloz once again indicated that the bank’s interest rate cuts in recent years had ‘done their job’, which has bolstered market hopes that the Bank of Canada could tighten Canada’s monetary policy sooner than markets previously expected.

Bets of a BOC interest rate hike bet as soon as July rose to 60% due to his comments.

The Canadian Dollar’s gains were limited however, as prices of oil, Canada’s most lucrative commodity, remained weak. There are persistent signs that OPEC-led oil production cut plans are not having a lasting effect on lightening a supply glut or bolstering demand.

US oil stockpiles look to come in higher than expected this week, which has weakened oil and the oil-correlated ‘Loonie’. This helped the Pound to capitalise on the day’s BoE news.

GBP/CAD Forecast: Key Growth Data Due Friday

The Pound to Canadian Dollar exchange rate is unlikely to see a shift in movement on Thuesday unless the Bank of England consumer credit report from May surprises investors or commodity news surprises ‘Loonie’ traders.

Friday will see the publication of highly anticipated Gross Domestic Product (GDP) reports from both Britain and Canada. Britain’s final Q1 growth data could boost the Pound if it beats expectations, which would leave GBP/CAD a little stronger into the end of the week.

Canada’s April growth results will also be published. Analysts project Canada’s growth will have slowed to 0.2% in April after solid growth in Q1, so even lower growth would definitely weaken the ‘Loonie’.

Comments from central bank officials have been pivotal to GBP/CAD movement this week, so any further comments would influence the pair further.

As well as this, developments in commodities such as oil will have an impact on Canadian Dollar movement as always.

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TAGS: Pound Canadian Dollar Forecasts