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Pound Canadian Dollar Exchange Rate News: GBP/CAD Wavered amid Elevated BoE Rate Hike Bets

May 31, 2023 - Written by John Cameron

Pound (GBP) Underpinned by Rate Hike Expectations

The Pound (GBP) found modest strength against many of its peers on Wednesday despite a lack of major economic data. Elevated interest rate hike expectations could have kept Sterling supported amid the prospect of several more rate hikes in the coming months.

With last week’s surprise inflation reading, which saw core inflation unexpectedly soar and headline CPI cooling less than expected. With expectations of the Bank of England (BoE) reaching the end of their aggressive rate hike cycle, the markets are now expecting interest rates to hit 5.5% before the autumn. Benjamin Schroeder, Senior Rates Strategist at ING commented on the situation:

‘The UK inflation surprise has hit a nerve amid concerns that central banks’ jobs are far from over… The market is now (seeing) a good chance that the Bank of England could push up interest rates to 5.5% before the year ends.’

Canadian Dollar (CAD) Undermined by Tumbling Oil Prices

Meanwhile, the Canadian Dollar (CAD) struggled for increased demand as WTI crude prices continued to fluctuate wildly. Falling to below $69 a barrel for the first time since the beginning of May, a souring market mood has weighed heavily on the commodity-linked ‘Loonie’.

With fears of the US debt ceiling bill hitting a snag in Congress, as it was only narrowly passed in both chambers of Congress. With concerns mounting of the debt limit not being raised, the financial fallout could be catastrophic. Market sentiment soon soured, driving down global demand for oil.

Elsewhere, with concerns over China’s stuttering recovery post-Covid, the strong rebound that buoyed the market has since slowed. The latest PMIs highlight a faltering rebound, with manufacturing slipping for the second consecutive month. Unexpectedly falling to 48.8 in May, a five-month low as both global and domestic demand waned. Bruce Pang, Chief Economist at Jones Lang LaSalle, said of the latest data:

‘The PMI data reveal that China may heading to a K-shaped recovery. The sluggish domestic demand could weigh on China's sustainable growth, if there are no efficient and effective policy moves to engineer a broad-based recovery.’

GBP/CAD Exchange Rate Forecast: Modest Canadian GDP Growth to Boost the Loonie?

Looking ahead, the Pound Canadian Dollar exchange rate could see further movement with the release of the latest Canadian economy growth data. After a stagnating fourth quarter of 2022, a modest return to growth could boost the Canadian Dollar.

Meanwhile, the Pound could see a moderate boost with a speech from BoE policymaker Catherine Mann. Renowned as one of the more hawkish members of the monetary policy committee, if Mann talks of further interest rate rises, Sterling could climb.

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