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GBP/CAD Forecast: Pound to Canadian Dollar Exchange Rate Flounders after Yesterday’s Plummet

April 22, 2021 - Written by Tim Boyer

After plummeting from monthly highs yesterday, the British Pound to Canadian Dollar (GBP/CAD) exchange rate has seen slightly more steady movement today. The Pound’s attempts to advance have not been sustained though, as a lack of fresh upside in Britain’s outlook is leaving the Pound without the drive to advance. Meanwhile, the Canadian Dollar outlook remains appealing on the possibility of a more hawkish Bank of Canada (BoC) next year.

GBP/CAD opened this week at the interbank level of 1.7308, and has since been trending with an upside bias. GBP/CAD briefly capitalised on Canadian Dollar weakness to strike a monthly best level of 1.7584 yesterday, before the latest Bank of Canada news sent the pair tumbling again.

On Thursday, GBP/CAD continues to struggle to advance after yesterday’s surge. At the time of writing, GBP/CAD is trending in the region of 1.7389.

Pound (GBP) Exchange Rates Struggle for Direction amid Lack of Fresh UK Developments

Investors have been hesitant to make big new moves on the Pound this week, amid a lack of fresh notable support for the Pound or the UK outlook.

While the UK outlook remains strong overall, some analysts believe that much of the optimism around Britain’s outlook has already been priced into the Pound.

With this week’s UK data being either mixed or unsurprising, investor appetite for the Pound has been unchanged in recent sessions. Investors have no fresh reason to buy the Pound, so its movement has been caused more by rival strength and speculatiuon.

According to Kenneth Broux, FX Strategist at Societe Generale:

‘I think the macro economic data (in the UK) is brightening, we’ve seen that in the economic numbers this week … we also have strong consumption.

The only question really for the Pound is how much is priced in, in terms of the economy. We know Q2 will be strong-ish but we don’t know how strong it is and what is priced in.’

Concerns about potential political uncertainty ahead of upcoming Scottish Parliamentary Elections next month are also weighing on Sterling and preventing it from firming higher. Economists at Westpac said:

‘Support for SNP has pulled back from its late 2020 heights as the Brexit trade deal was being finalised but remains high and so concerns over another Independence referendum may rattle markets into the 6th May elections, which is also when the BoE hold their next policy meeting.’

Canadian Dollar (CAD) Exchange Rates Hold Strong after Bank of Canada (BoC) Boost

Wednesday saw the Bank of Canada (BoC) hold its April policy decision. The Canadian Dollar had been plunging before the decision, as rising global coronavirus cases caused fresh market uncertainty and weakness in commodity trade.

As was widely expected, the bank tapered its quantitative easing (QE) slightly whilst leaving rates frozen.

However, some investors were surprised by how hawkish the BoC’s tone was. Not only did the back upgrade its outlook, it also showed signs that it would look at hiking monetary policy in 2022.

Analysts don’t expect more tapering from the BoC just yet. According to Derek Holt, Vice President of Capital Markets Economics at Scotiabank:

‘The Bank of Canada met almost all of our expectations for a hawkish taper,

I would advise penciling in a further taper (of bond buying) at the July MPR meeting.’

Overall though, fresh speculation that the Bank of Canada could become even more hawkish next year led to a surge in Canadian Dollar demand which has kept GBP/CAD under pressure since yesterday.

GBP/CAD Exchange Rate Forecast: Key Data Due Over the Next Week

Key UK data due for publication tomorrow could cause a late-week shift in the Pound to Canadian Dollar exchange rate.

Friday’s session will see the publication of UK retail sales results from March, as well as Markit’s April PMI projections.

These stats will give investors a better idea of how Britain’s economy has been performing for the past month or so, as the nation’s third coronavirus lockdown gradually softens.

Higher economic performance could make investors even more optimistic about Britain’s economic recovery outlook, which could further boost Pound appeal and lead to GBP/CAD gains.

While there is not much major Canadian data due tomorrow, some highly influential Canadian ecostats are due next week.

Canadian retail sales results are due on Wednesday, with wage data due Thursday and growth rate data expected to be published next Friday.

With key Canadian data due next week, the Canadian Dollar could take point in Pound to Canadian Dollar (GBP/CAD) exchange rate.
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