Pound To Canadian Dollar Week Ahead Forecast: 1.7327, Where Next? (2024)

The Pound Canadian Dollar (GBP/CAD) exchange rate dropped on Thursday and continued sinking through Friday’s session, as Bank of England induced weakness in the Pound (GBP) pressured GBP/CAD.

Pound Sterling weakened against the Canadian Dollar in the second half of last week’s session, depressed by a dovish Bank of England.

The Pound Canadian Dollar (GBP/CAD) exchange rate dropped on Thursday and continued sinking through Friday’s session, as Bank of England induced weakness in the Pound (GBP) pressured GBP/CAD.

At the time of writing, GBP/CAD is trading at C$1.7303, having tumbled over the past seven days by almost 0.7%.

Pound (GBP) Plunges through Thursday’s Session

Ahead of Thursday’s interest rate decision, GBP/CAD traded broadly sideways. At the start of the week, the Pound made marginal gains despite a lack of UK data, although investors’ trepidation ahead of Wednesday’s inflation release capped tailwinds.

On Tuesday, Sterling traded in a mixed range. Weaker-than-forecast US retail sales dented USD morale and buoyed Sterling in several exchange rates, but depressed the currency against its risk-on peers.

On Wednesday, the much-awaited UK inflation release printed mixed: on a monthly basis, headline inflation missed expectations while core price pressures exceeded forecasts. GBP/CAD softened after an initial overnight climb, amid concerns that the BoE would see fit to take a more dovish policy stance ahead.

Into Thursday, the Pound trended sharply lower: the Bank of England kept interest rates on hold as expected, but traders were concerned by dovish forward guidance. Comments from the Monetary Policy Committee (MPC) were limited as the central bank caps public engagement ahead of the general election, yet policymakers noted:

‘The restrictive stance of monetary policy is weighing on activity in the real economy, is leading to a looser labour market and is bearing down on inflationary pressures. Key indicators of inflation persistence have continued to moderate, although they remain elevated.’

GBP/CAD continued to slump at the end of the week, despite a greater-than-expected surge in UK retail sales. Slowing expansion in the service sector according to June’s flash PMI undermined tailwinds, as survey respondents noted that despite higher customer demand, growth was countered by spending decisions being delayed ahead of the general election.

Chris Williamson, chief business economist at S&P Global, remarked: ‘The slowdown in part reflects uncertainty around the business environment in the lead up to the general election, with many firms seeing a hiatus in decision making.’

Canadian Dollar (CAD) Firms as Crude Oil Value Climbs

The Canadian Dollar (CAD) was supported last week by the rising value of crude oil, Canada’s main export. Moreover, intermittent US Dollar support buoyed the ‘Loonie’, given the currency’s strong positive correlation with the ‘Greenback’.

CAD trended broadly sideways at the start of the week, despite a greater-than-expected number of housing starts. A lack of significant data elsewhere exposed the currency to losses, as a risk-on mood boosted the ‘Loonie’s perceived riskier peers.

On Tuesday, the Canadian Dollar traded in a mixed range, though tracked sideways against the Pound. Weakness in the US Dollar pressured the ‘Loonie’, but rising oil prices countered headwinds.

Midweek, CAD/GBP tumbled before recovering as Sterling investors digested the latest UK inflation data. In Canada, traders appeared unfazed by the Bank of Canada (BoC)’s summary of deliberations, which weighed the merits against the pitfalls of maintaining higher interest rates for longer.

The Canadian Dollar climbed at the end of the week in several exchange rates, buoyed by an extended recovery in oil prices as well as strength in the ‘Greenback’ as risk appetite waned. The ‘Loonie’ defied downbeat prospects amid uncertainty over Canada’s economic performance ahead; a divergence in monetary policy between the BoC and the Federal Reserve prompted minor jitters.

Karl Schamotta, chief market strategist at Corpay Inc., remarked:

‘The views of investors around the world on the Canadian economy’s prospects have dimmed pretty substantially... They’re very much aware that this is one of the most rate-sensitive economies in the world. They’re betting against Canadian household consumption and assuming that we’re going to see further weakness in the years ahead.’

GBP/CAD Exchange Rate Forecast: Canadian Inflation in Focus

The Pound Canadian Dollar exchange rate could trade in a mixed range this week, though Tuesday’s Canadian inflation report is likely to dent the ‘Loonie’ if price pressures waned in May as expected.

Markets are already concerned that the BoC has taken a more cautious approach to monetary policy tightening than the Federal Reserve; easing inflation could spur further concerns regarding interest rate cuts ahead.

Elsewhere, currency markets will be awaiting the latest inflation data from the US. The Core PCE price index is the Federal Reserve’s preferred measure of inflation, and could influence the central bank’s interest rate trajectory – if price pressures waned in the US as in Canada, both the US Dollar and the positively-linked ‘Loonie’ could succumb to losses.

Meanwhile, an improvement in Britain’s industrial trends orders could lend Sterling some support earlier in the week. A lack of significant UK data caps GBP movement somewhat, although if the latest GDP release confirms growth in the UK economy on Friday, the Pound may enjoy tailwinds.