The British Pound to Canadian Dollar (GBP/CAD) exchange rate plunged today, and was in fact one of the worst performing major Pound pairs due to lasting strength in the Canadian Dollar. While the Pound plummeted on fresh bets that the Bank of England (BoE) could cut UK monetary policy soon, the Canadian Dollar continued to benefit from last week’s stronger than expected Canadian job market data which softened Bank of Canada (BoC) easing speculation itself.
Due to resilience in the Canadian Dollar, GBP/CAD didn’t advance much last week. GBP/CAD opened the week at the level of 1.7000 and spent most of the week around half a cent higher, before closing the week in the region of 1.7050.
When markets opened this week though, the Pound’s more notable weakness combined with continued optimism in Canadian Dollar trade quickly knocked GBP/CAD over half a cent lower.
At the time of writing on Monday afternoon, GBP/CAD is trending near a low of 1.6925. This is the worst GBP/CAD level in two months, since November 2019.
GBP Exchange Rates Slump on Rising Bank of England (BoE) Interest Rate Cut Bets
For much of last week, the Pound saw resilient movement as it was supported by hopes of a smooth Brexit process in 2020, as well as hopes that Britain’s economy would stabilise following months of political uncertainty.
However, towards the end of the week Bank of England (BoE) Governor Mark Carney said the bank would be willing to loosen UK monetary policy if domestic data didn’t show more signs of improvement.
While Sterling initially brushed over these comments, weekend comments from other policymakers only made investors more anxious about the possibility of a BoE rate cut in the coming months.
Bets that the BoE could cut rates as soon as the January decision at the end of the month surged today, in response to some weaker than expected UK ecostats.
Britain’s November growth rate report printed an unexpected contraction of -0.3% month on month. On top of this, Britain’s November industrial and manufacturing results all showed deeper than expected contractions.
According to Matthew Cady, Investment Strategist at Brooks Macdonald:
‘UK GDP for November has come in at negative -0.3%. This is quite a bit weaker than had been expected. Consensus had been looking for zero growth month on month. Against this, both September and October were revised up by 0.2% and 0.1% points respectively.
The weaker GDP print today puts beyond doubt that the next Bank of England meeting at the end of January is going to be a ‘live’ meeting.’
CAD Exchange Rates Continue to Find Support in Last Week’s Stronger than Expected Job Stats
The Canadian Dollar has seen mixed movement in recent weeks, as some data has fallen short and other data has beaten forecasts.
This has overall left market Bank of Canada (BoC) interest rate cut speculation volatile and mixed.
However, due to US-Iran military tensions boosting oil prices last week, the Canadian Dollar saw resilient movement for much of the week. Oil is Canada’s most lucrative commodity so the Canadian Dollar is often correlated to oil prices.
The Canadian Dollar ended last week on a strong note as well, as Canada’s December job market report beat expectations in some key prints and softened Bank of Canada easing speculation.
35.2k new jobs were created in December, and the unemployment rate unexpectedly improved more than expected to 5.6%.
With BoC interest rate cut speculation doused again for now and market trade sentiment recovering from last week, the Canadian Dollar is one of the strongest major currencies today.
GBP/CAD Exchange Rate Forecast: UK Datasets Could Dominate Movement
The coming week will be relatively quiet for Canadian data. With global geopolitics seeming to calm and Bank of Canada (BoC) interest rate cut speculation low, the Canadian Dollar is likely to remain resilient for much of the week.
As a result, the Pound to Canadian Dollar exchange rate could be driven more by the Pound’s strength.
Pound investors are eagerly anticipating more UK data that could influence Bank of England (BoE) interest rate cut bets.
UK inflation data on Wednesday and Friday’s retail sales results could be particularly influential. If UK inflation falls short, price pressure concerns would rise and give the BoE even more reason to lighten monetary policy.
Any surprising developments in Brexit or geopolitics could also influence the Pound to Canadian Dollar exchange rate in the coming week.
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