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Pound Canadian Dollar Exchange Rate News: GBP/CAD Subdued as Recession Concerns Grow

June 21, 2022 - Written by John Cameron

Pound (GBP) Trades Narrowly amid Recession Fears

The Pound (GBP) is muted today as speeches from the Bank of England (BoE) failed to boost investor’s sprits ahead of a potential recession.

BoE Chief Economist Huw Pill said today that the central bank will be ready to act if inflationary pressures continue to take its toll on the UK economy:

‘We will do what we need to do to get inflation back to target. And at least in my view, that will require further tightening of monetary policy over the coming months. We see ourselves as steering a narrow path between persistent inflation pressure and recession.’

Lending support to Sterling however, was BoE policymaker Catherine Mann comments yesterday reiterating that more aggressive rate hikes are needed in order to shore up the weak Pound.

Having voted for a bolder 50bps hike in last week’s policy meeting, Mann argued that a bigger rate hike reduces the risk of inflation being boosted by a weaker GBP exchange rates.

Mann said: ‘In my view, a more robust policy move reduces the risk that domestic inflation already embedded is further boosted by inflation imported via a Sterling depreciation.’

If the BoE continue to lag behind the more aggressive rate hikes of the Federal Reserve (Fed) and the European Central Bank (ECB), the resultant increased downward pressure could affect the Pound. Mann continues:

‘I open the door to a policy rate reversal in the medium term when the domestic supports to demand fade and when weakness in external sources of demand bite.’

If the BoE do opt for a more aggressive rate hike, the Pound could see a much-needed boost.

Canadian Dollar (CAD) Wavers as Oil Rebounds from Monthly Low

The Canadian Dollar (CAD) is recovering today after Canada’s key export, WTI crude oil, hit a monthly low last week. With cautious optimism around the commodities market growing, oil prices benefitted and rebounded from lows of $109 to $111.

With tensions continuing in Ukraine amid the Russian invasion, fresh supply concerns have boosted crude and in turn, the commodity-linked Canadian Dollar.

Also lending support the Canadian Dollar today are positive updates out of China as their zero Covid policy restrictions are starting to ease, with businesses reopening and manufacturing resuming. A slowdown in the world’s second largest economy has a negative impact on the demand for oil, potentially weighing on the Canadian Dollar.

Providing potential headwinds to the ‘Loonie’ however, are growing concerns with slowing economic growth and a drop in fuel demand could stunt crude oil prices again. The continued tightening of monetary policies by the world’s banks could push the global economy into a recession, and in turn the demand for oil could tumble.

Meanwhile, as the West continues to employ sanctions on Russia and their oil and gas exports, China has stepped in and gladly taken up the slack. Oil imports to China from Russia have risen dramatically, with an increase of 55% in May alone.

GBP/CAD Exchange Rate Forecast: Fed Rate Hike to Weigh Further on the Pound?

Looking ahead, the Pound Canadian Dollar exchange rate could fluctuate with the release of inflation data tomorrow.

With UK inflation expected to hit 9.1%, the soaring cost of living could force the BoE’s hand in taking a harder stance on combating inflation.

Elsewhere, Canadian retail sales are due to print later today, with sales growth in Canada expecting to rise by 0.8% in April after remaining unchanged the previous month. An improvement in retail sales can boost the ‘Loonie’ further.

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