Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Falls as Markets Price in BoE Cut
The Pound Sterling Canadian Dollar (GBP/CAD) exchange rate slumped by around -0.3%, ahead of today’s Bank of Canada (BoC) meeting, leaving the pairing trading at around CA$ 1.7099.
The Pound weakened on Wednesday after the US Federal Reserve’s surprise rate cut fuelled expectations the country’s own central bank would begin easing policy.
Markets priced in a higher chance of a rate cut from the Bank of England (BoE), which could protect the economy from the impact of Covid-19.
Investors have fully priced in a rate cut for the bank’s next meeting, and there are now two cuts priced in by the end of 2020.
Commenting on this, Jeremy Stretch, head of G10 currency strategy at CIBC Capital Markets said:
‘Certainly the market is priced for a 25 bps cut at the March meeting, so the market is anticipating the BoE will use up its arsenal.
‘We have the services PMI data this morning and markets are mindful that [next BoE chief] Andrew Bailey is speaking this afternoon, so there are a number of factors playing into the Sterling weakness.’
Canadian Dollar (CAD) Makes Gains as Oil Prices Rise
The Canadian Dollar rose against the Pound as Brent oil prices edged higher on expectations major producers are likely to make deeper cuts.
Expectations major oil producers are closer to an agreement to make deeper output cuts to offset weaker demand due to Covid-19 buoyed the ‘Loonie’.
Saudi Arabia along with other OPEC member are attempting to persuade Russia to join them in additional oil output cuts to support prices which have been battered by the coronavirus outbreak.
Market analyst at FXTM, Han Tan noted:
‘With demand-side uncertainties having already dragged Brent futures about 19 percent lower since the start of the year […] oil’s upside appears significantly capped amid persistent concerns over the coronavirus outbreak.’
Russia has signalled that it would be willing to agree to extend existing cuts which are due to expire this month but might find it difficult to sign up to deeper cuts.
Speaking ahead of today’s meeting between Saudi Energy Minister Prince Abdulaziz bin Salman and his Russian counterpart, Alexander Novak, an anonymous OPEC source said:
‘OPEC hopes for a cut bigger than 1 million but the challenge is still Russia.’
Pound Canadian Dollar Outlook: Bank of Canada Rate Decision in Focus
Looking ahead to this afternoon, the Canadian Dollar (CAD) could continue to rise against the Pound (GBP) following the Bank of Canada (BoC) interest rate decision.
The BoC is expected to follow the Federal Reserve’s move and cut interest rates in the face of increased Covid-19 concerns. This could provide the ‘Loonie’ with support, as the rate cut could ease coronavirus fears.
After coronavirus fears scared markets and sent oil prices lower, markets expect BoC Governor Stephen Poloz to lower rates by at least 25 basis points.
As the country’s central bank already has the highest policy rate amongst advanced economies, it is unlikely it will be able to resist the global response of easing.
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