July 8, 2022 - Written by John Cameron
STORY LINK Pound Canadian Dollar Exchange Rate Trends Sideways as BoC Set to Hike Rates
Pound Canadian Dollar (GBP/CAR) Exchange Rate Rangebound after Canadian Jobless Figures
The Pound Canadian Dollar (GBP/CAD) exchange rate is trading within a narrow range today. A recovery to crude oil prices as well as evidence of a tight labour market in Canada may be capping gains for the currency pair. On the other hand, some hawkish signals from Bank of England (BoE) officials may be underpinning GBP/CAD today.
At time of writing the GBP/CAD exchange rate is at around $1.5588, virtually unchanged from this morning’s opening figures.
Canadian Dollar (CAD) Ticks Higher amid Tight Labour Market
The Canadian Dollar (CAD) is trending higher against its rivals today. Unemployment figures for June hit its lowest point since 1976 today, potentially prompting increased bets on the currency due to a tight labour market.
Wage growth, one of the Bank of Canada’s (BoC) key inflationary gauges, rose to 5.6% in June from 4.5% in May. The figures could help push the CAD higher amid expectations on an imminent interest rate hike from the BoC.
A survey of economists by Reuters could add further fuel to hopes for aggressive action from the central bank. The poll of 29 economists found that over 90% of respondents expect the BoC to deliver a 0.75% rate hike at their July meeting. Such a move would be the central bank’s largest rate hike since August 1998.
An uptick in crude oil prices may have also helped the commodity-tied ‘Loonie’ to make gains today. A tight supply of the commodity has seen investors continue to place bullish bets despite global financial pressures.
Pound (GBP) Trends Lower as Government Turmoil Continues
The Pound (GBP) is dipping lower against its rivals today. The currency has shed many of its gains from Thursday as markets stabilised following Prime Minister Boris Johnson’s resignation.
Sterling saw a short-term bump following Johnson’s resignation statement yesterday. Focus has now turned to Johnson’s successor as Conservative MPs position themselves for a leadership contest. With Johnson acting as a ‘lame duck’ PM until a new leader is selected, investors are also concerned of potential economic inaction during a cost-of-living crisis.
Mixed signals from the Bank of England (BoE) and its efforts to tackle inflation could also be weighing on GBP today.
On the one hand, BoE Governor Andrew Bailey has given dovish signals in recent weeks. Speaking last week, Bailey stated that that the central bank would not need to ‘act forcefully’ to bring inflation down. In another speech on Tuesday, Bailey went on to say that the health of the global economy has ‘deteriorated materially’.
On the other hand, other BoE policymakers have signalled that they would support aggressive interest rate hikes at upcoming meetings. This may limit losses for the Pound. On Wednesday, policymaker Huw Pill signalled that he would be willing to support further rate hikes ‘to achieve the 2% inflation target’.
Thursday’s speech from Catherine Mann may also be limiting any falls for Sterling. Mann stated that it was ‘important to front-load policy’.
GBP/CAD Exchange Rate Forecast: Will BoC Hike Rates as Expected?
Looking to the week ahead for the Pound, a predicted mild recovery to GDP growth could help to push the currency higher on Wednesday. The May figures are still set to fall but are forecast to print at March’s levels. Balance of trade figures on Wednesday could also prompt movement in Sterling.
Uncertainty surrounding the UK government’s leadership could also weigh upon the Pound in the coming week. Additionally, concerns over the stability of UK-EU relations could act as headwinds for GBP.
For the Canadian Dollar, investors will be keenly awaiting the BoC’s interest rate decision on Wednesday. A rate hike in line with expectations could bolster the Canadian Dollar, although gains could be limited if markets have priced in the rise.
The commodity-tied ‘Loonie’ could also be affected by any further fluctuations in the price of crude oil. Prices of the commodity could slump further amid recession-based demand concerns.
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TAGS: Pound Canadian Dollar Forecasts