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GBP CAD Exchange Rate Spikes as BoE’s Forbes Pushes for Rate Hike

March 16, 2017 - Written by Frank Davies

The British Pound to Canadian Dollar exchange rate continued to trend near the week’s best levels on Friday afternoon and looked to end the week over half a cent above its opening levels.

Oil prices have been in flux throughout the week, making it difficult for the Canadian Dollar to benefit. This week’s Bank of England (BoE) news has left Sterling as the clear winner against the ‘Loonie’.

[Previously updated 11 am]

Market optimism continued to push the Pound to Canadian Dollar exchange rate higher on Friday morning, even though the Bank of England still looks set to remain on hold for the foreseeable future.

If the latest Canadian manufacturing sales data shows a contraction on the month as forecast the Pound could extend its bullish run against the Canadian Dollar this afternoon.

[Previously updated 16/03/2017]

The GBP CAD exchange rate mounted a dramatic recovery this afternoon as the Bank of England’s Kristin Forbes broke ranks and voted to raise UK interest rates.

Pound Canadian Dollar (GBP CAD) Rallies as Forbes Votes to Raise Rates

The Pound Canadian Dollar (GBP CAD) exchange rate leapt over a cent today as outgoing BoE policy maker Kristin Forbes shocked markets by voting to raise interest rates in today’s policy meeting.

Despite the rest of the members of the BoE’s Monetary Policy Committee (MPC) voting to leave interest rates unchanged at a record low of 0.25%, Sterling sentiment was markedly improved by the hawkish tone struck by Forbes.

Forbes argued that the rapid rise in inflation and the unemployment rate striking a 42-year low was enough justification to raise interest rates this month.

Most analysts did not appear to be swayed by the hawkish stance of a lone policymaker however, although this did not seem to stop markets pouncing on the Pound this afternoon.

Howard Archer, economist at the consultancy IHS Markit said;

‘We maintain the view that the Bank of England is highly likely to sit tight on interest rates through 2017 and 2018 – and very possibly beyond. However, given major uncertainties over the UK economic outlook nothing can be ruled out on the interest rate front.’

Canadian Dollar Strengthened by Oil Prices

The unexpected jump in the Pound has also brought an early end to the Canadian Dollar rally today as CAD GBP advanced late on Wednesday as oil prices jumped after slumping for much of the past week.

With petroleum products accounting for over 25% of Canadian exports the ‘Loonie’ is highly sensitive to movements in the oil markets.

The rally in prices was prompted by an unexpected contraction in US crude inventories, with figures showing a deficit of 237,000 barrels for the week ending March 10th. A considerable decline from an 8.2m barrel surplus reported the week before.

Brent Crude rose $52.19 a barrel on Thursday morning, up from $50.25 on Wednesday ahead of the US stock figures.

Prices were also supported by the Federal Reserve’s rate decision yesterday evening as despite voting to raise US interest rates the US Dollar fell, helping to bolster oil which is priced in USD.

However observers still feel that the industry will have to take additional measures if it wishes to solidify the market.

Olivier Jakob of Swiss consultancy Petromatrix said;

‘The dollar is weaker due to the U.S. Fed. I don’t think it is going to be enough to bring some follow-through buying to crude oil. We need something more substantial.’

GBP CAD Exchange Rate Forecast: Brexit to Drag on Pound?

The GBP CAD exchange rate may struggle to keep hold of its gains over the coming weeks as Theresa May prepares to trigger Article 50, beginning two years of market uncertainty as the UK government negotiates its exit from the EU.

Meanwhile in the Canadian Dollar may cede further ground tomorrow as economists predict that domestic manufacturing sales will contract in January, falling from 2.3% to -0.4%.

Current Interbank Exchange Rates

At the time of writing the GBP CAD exchange rate was trending around 1.64 and the CAD GBP exchange rate was trending around 0.60.

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