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Pound Canadian Dollar Exchange Rate News: GBP/CAD Fluctuated ahead of BoC Interest Rate Decision

June 7, 2023 - Written by John Cameron

Canadian Dollar (CAD) Quiet Ahead of BoC Rate Decision

Meanwhile, the Canadian Dollar (CAD) is fairly muted as Cad investors move to the sidelines ahead of the latest interest rate decision from the Bank of Canada (BoC).

With the markets pricing in another unchanged policy rate. Expectations that the central bank will keep the rate at 4.5%, unchanged since January as the BoC have raised the interest rates by 425bps in the previous eight meetings. Economists at ING commented on the latest looming decision:

‘We expect the BoC to leave the policy rate at 4.5%, but after stronger-than-expected consumer price inflation and GDP and with the labour data remaining robust, we cannot rule out a surprise interest rate increase.’

However, a small minority of economists are predicting a surprise hike. With inflation proving stickier than expected, a resilient labour market, and a strong economy, the case for a hike remains on the table.

Keeping the ‘Loonie’ supported, however, is a strong economic performance. With GDP growth surprising to the upside, expanding 0.8% QoQ showed the fastest pace of economic growth since Q2 2022.

Pound (GBP) Modestly Supported by Elevated Rate Hike Bets

Meanwhile, the Pound (GBP) remained subdued amid a lack of economic data. The momentum of last week’s rally lost most of its steam as investors held off until next week’s flurry of activity.

Providing modest support, and possibly preventing Sterling from sliding further, are elevated interest rate hike best from the BoE. Expectations have been growing for further tightening beyond the June meeting. Analysts are predicting that the central bank could continue their relentless hike cycle through the summer, with the terminal rate reaching 5.5%.

GBP/CAD Exchange Rate Forecast: Hawkish BoC to Buoy the Canadian Dollar?

Looking ahead, the Pound Canadian Dollar exchange rate could see further movement with the BoC interest rate decision on Wednesday afternoon. Even if the central bank opt to keep the rate unchanged, any hints of a return to hikes could buoy the ‘Loonie’. Analysts at TD Securities predict a surprise hike:

‘We look for the BoC to hike by 25bp in June, and 25bp in July. Ongoing economic resilience will lengthen the path back to 2.0% inflation and as such, we believe the BoC needs to tighten further.

While market pricing is around 40% chance of a June hike, the reasons we are calling for a hike coupled with the market building towards a hike possibility are exactly why we continue to feel flatteners are the right way to skew.’

Meanwhile, the Pound will continue to trade on market sentiment amid a thin trading calendar for the rest of the week. Sterling could be possibly kept afloat by the prospect of further tightening.

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TAGS: Pound Canadian Dollar Forecasts

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