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GBP CAD Exchange Rate Surges Higher after BoE Splite 5-3 on Interest Rates

June 15, 2017 - Written by John Cameron

Weaker-than-expected UK retail sales figures put fresh pressure on the Pound Canadian Dollar exchange rate on Thursday morning.

While forecasts had pointed towards a contraction in spending the figure still surprised to the downside, with sales falling -1.6% on the month in May.

Coupled with Tuesday’s unexpected uptick in inflationary pressure and the unimpressive nature of the latest wage growth data this suggests that the recent trend of strong consumer spending is coming to an end.

As consumers face a deepening squeeze on wages momentum in the economy is likely to falter further, given that high levels of spending helped to shore up growth in the wake of the Brexit vote.

However, the Pound soon found a rallying point as the Bank of England (BoE) proved unexpectedly hawkish at its June policy meeting.

Surprise BoE Split Prompts GBP Exchange Rate Surge



In a surprise move the Monetary Policy Committee (MPC) showed a significant split, with three policymakers voting to immediately raise interest rates by 25bpt.

Although the other five members of the MPC continued to take a neutral outlook on rates this marked shift was enough to send Sterling trending higher against many of its rivals.

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This naturally boosted speculation that the BoE could return to a tightening bias sooner than previously anticipated, even though this marked the final policy meeting for seasoned hawk Kristin Forbes.

It is questionable whether the Pound will be able to sustain its sudden bullishness, especially as BoE Governor Mark Carney is due to speak at the annual Mansion House event this evening.

If Carney maintains a more cautious tone on monetary policy this could see the GBP CAD exchange rate return to a weaker footing.

Further volatility could also be in store in response to comments from Chancellor of the Exchequer Philip Hammond, as analysts at TDS noted:

‘Chancellor Hammond’s speech could end up being the bigger market mover though; there has been speculation in the press that he could use the speech to advocate for a softer Brexit and putting the economy first. If he does break that publicly from the government’s stated stance, that would likely see markets pricing in a higher chance of a smoother Brexit outcome.’


Any increase in the sense of political uncertainty could weigh heavily on the GBP CAD exchange rate.

Oil Weakness Pressures Canadian Dollar



The appeal of the Canadian Dollar, on the other hand, remained limited thanks to continued pressure on oil prices.

After the latest US inventories data failed to fall as far as forecast Brent crude prices slipped once again, trending below the US$47 per barrel mark.

With global oversupply concerns expected to persist for some time to come, in spite of the continued efforts of OPEC, oil looks unlikely to break back above the psychologically important US$50 mark any time soon.

Even though the odds of the Bank of Canada (BOC) opting to raise interest rates before the end of the year have increased markedly this week the Canadian Dollar struggled to hold onto its recent gains.

A general weakening in risk appetite also helped to support the GBP CAD exchange rate on Thursday, with demand for commodity-correlated currencies dented by a more hawkish Federal Reserve meeting.

However, if the BOC looks set to follow the Fed in pursuing tighter monetary policy over the coming months the appeal of the Canadian Dollar could soon recover.

The GBP CAD exchange rate could come under pressure if May’s Canadian existing home sales data proves encouraging, with a strong housing sector likely to bolster the confidence of the BOC.

After April’s sharp contraction a positive showing here could give CAD exchange rates a boost ahead of the weekend.

The latest manufacturing shipments figure, on the other hand, is expected to show a modest slowing on the month and could weigh on the mood towards the Canadian Dollar.

Any indications that the domestic economy is in a less robust state could undermine bets that the BOC will tighten monetary policy in the coming months, giving investors reason to pile out of the CAD.
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