An uneventful Bank of England (BoE) policy meeting had limited impact on the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate.
As the Monetary Policy Committee (MPC) delivered a unanimous vote to leave interest rates on hold the Pound struggled to find any fresh momentum against its rivals.
With rates looking set to remain on hold for the foreseeable future the potential for fresh GBP exchange rate gains appears limited, especially in the face of persistent Brexit-based jitters.
Morten Lund, analyst at Nordea Markets, commented:
‘In the meeting minutes, the committee stated that the economy is still developing as anticipated in the August inflation report.
‘The appetite for a weaker GBP remains very limited within the MPC, as any further GBP weakness will mean overshooting the inflation target. In sum this is a text book “non-event”.
‘Unless we get a cliff-edge no-deal scenario for Brexit, then the GBP remains very cheap.’
However, as oil prices reversed almost all of yesterday’s gains this left the Canadian Dollar on a downtrend, giving the GBP/CAD exchange rate a boost.
BoE Minutes Fail to Offer Significant Reassurance to GBP/CAD Exchange Rate
Investors took little in the way of encouragement from the BoE’s September meeting minutes, which showed limited change from the previous meeting.
As Jonas Goltermann, Developed Markets Economist at ING, noted:
‘The statement and minutes suggest the MPC judges recent data to have been largely in line with its August forecast. If anything, the latest month has seen the UK data come in a touch stronger than anticipated.
‘More importantly, the committee’s language on Brexit also appears to signal an increase in concern, noting that since the August meeting there have been signs of greater uncertainty around the withdrawal process, especially in financial markets.
‘The minutes also convey some worries about turmoil in some emerging markets this summer and the increasing trade tensions between the US and China.
‘The continued strong performance of the US economy provides limited comfort.
‘Overall, we see little news in today’s policy announcement, and nothing to change our view that the BoE is likely to remain in a holding pattern until Brexit uncertainty passes. That means a rate hike is unlikely until May 2019, at the earliest. The BoE outlook continues to depend in large part on the UK and EU achieving a smooth withdrawal process.’
As credit rating agency Moody’s issued a warning that the UK economy could suffer significant harm in the case of a no-deal Brexit investors saw little incentive to favour the Pound on Thursday.
Comments from BoE Governor Mark Carney could provoke some additional volatility for the GBP/CAD exchange rate ahead of the weekend.
If Carney’s tone leans towards dovishness this would leave the Pound vulnerable to renewed selling pressure.
However, if Carney fails to make any particular mention of monetary policy or Brexit GBP exchange rates may continue to lack any significant momentum.
Oil Price Reversal Drags CAD Exchange Rates Lower
Oil prices slumped sharply in the wake of the latest International Energy Agency (IEA) report, which revealed that OPEC members have seen their crude oil output climb by 420,000 barrels a day in August.
This naturally reignited market worries over the outlook of the oil market, raising concerns that a fresh global oversupply glut could be on the way.
As a result, demand for the Canadian Dollar diminished sharply on Thursday afternoon, even as the wider sense of market risk appetite improved.
Even though the US Dollar trended lower in response to a disappointing inflation rate this was not enough to shore up the commodity-correlated currency.
However, the GBP/CAD exchange rate could come under renewed pressure in the days ahead if Canada and the US resolve their disagreements over trade.
The announcement of a fresh Canada-US trade agreement would give the Canadian Dollar a strong leg up against its rivals, diminishing the threat of any further US-imposed tariffs on Canadian goods.
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TAGS: Pound Canadian Dollar Forecasts