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Pound Canadian Dollar (GBP/CAD) Exchange Rate Firms as Investors Anticipate BoE Decision

January 30, 2023 - Written by John Cameron

Pound Canadian Dollar (GBP/CAD) Exchange Rate Strengths as Investors Anticipate BoE Decision

The Pound Canadian Dollar (GBP/CAD) exchange rate strengthened on Monday morning, as rate hike bets from GBP investors underpinned Sterling.

At the time of writing, GBP/CAD traded at around CA$1.6537, an increase of roughly 0.2% from Monday’s opening rates.

Pound (GBP) Wavers as Investors Anticipate BoE Rate Hike

The Pound (GBP) wavered on Monday morning, as investors began to grow jittery ahead of Thursday’s interest rate decision from the Bank of England (BoE).

While not fully priced in, the consensus is that the BoE will deliver a 50bps interest rate hike. This expectation may have served to underpin Sterling during Monday’s morning trade. Ultimately, this upcoming decision could have prompted a cautious market mood, which may mollify the increasingly risk sensitive Pound.

Michael Hewson, of CMC Markets, explored this further. He stated: ‘The strong start to 2023 appears to have given way to a little bit of caution for markets in Europe as we look to this week’s trifecta of central bank meetings, and what sort of outlook is painted by the Federal Reserve, ECB and Bank of England, and more importantly how many more rate hikes can we expect to see after next week.’

Elsewhere, thin liquidity may be keeping investor focus on domestic headlines in the UK. Prime Minister Rishi Sunak sacked the Conservative Party chair Nadhim Zahawi after a drawn out scandal over Zahawi’s taxes.

This could have capped GBP’s movements by alluding to political instability, with the Pound still recovering from last year’s government chaos.

Canadian Dollar (CAD) Capped by Falling Oil Prices

The Canadian Dollar (CAD) was unable to gain much ground on Monday morning, as oil prices fell significantly during the session.

At the time of writing, Crude oil traded at around $79.296, showing a decline of around 0.5% from Monday’s opening rates. As such, the oil linked ‘Loonie’ was limited in appeal to investors.

Interest rate hikes from major central banks, such as the Federal Reserve, were pointed to as a driver of the fall in price, which offset initial gains over hopes of increased demand from China.

Further weighing on the Canadian Dollar could have been the currency’s increasingly close correlation with the US Dollar. During Monday morning, the US Dollar appeared to be somewhat restrained and traded rather narrowly against most peers, which may have prompted CAD to do the same.

Elsewhere, an uptick in Canadian government bonds could be adding some support to the ‘Loonie’, cushioning it from substantial losses.

Pound Canadian Dollar (GBP/CAD) Exchange Rate Forecast: BoE Borrowing Data to Dent GBP?

Looking ahead for the Pound (GBP), Tuesday brings the release of the Bank of England’s (BoE) consumer credit data for December. This is forecast to show a fall from £1.507bn to £1.2bn, which may reflect on the cost of living crisis by showing the extent to which UK households are having to borrow to afford expenditure.

However, it does reflect a fall in the number borrowed, which could bring some cheer to GBP investors by pointing to a decrease in the number of UK households relying on credit.

Furthermore, mortgage approvals for December are due to print on Tuesday. A fall from 46075 to 43000 is expected. This could weigh on GBP by pointing to a slowdown in the housing market, which could amplify recession anxieties amongst investors.

For the Canadian Dollar (CAD), GDP readings for December are due to print on Tuesday. Currently, a fall is forecast to -0.1%, which indicates that the Canadian economy shrank in December. At the same time, November’s final GDP reading is expected. If this prints below forecast, it may add further weight to the ‘Loonie’ as the Canadian economy shows signs of slowdown.

Wednesday then brings the release of the S&P manufacturing PMI for January. Canada’s manufacturing index is forecast to remain pointing toward a contraction. As such, CAD could weaken as it increases recession fears.

Elsewhere, oil price fluctuations could keep the ‘Loonie’ on it’s toes due to its oil linked nature.

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