The Pound has progressively fallen against the Canadian Dollar recently, with the prospect of further losses on UK growth figures remaining on the horizon.
Future UK Slowdowns may Drag Down GBP CAD Exchange Rate
Recent UK PMI figures have shown falling growth across the UK economy, which can be considered a symptom of growing economic uncertainty.
The Pound has been softened by a slowdown in the manufacturing, construction and services sectors, which could indicate further poor ecostats going ahead.
The PMI figures for June have rounded off Q2’s results, but further slowdowns in Q3 and Q4 could cement the Pound’s status as the weaker currency against the Canadian Dollar.
Highlighting the problems faced by the UK economy has been Markit’s Chris Williamson;
‘Although the three PMI surveys are running at levels that are historically consistent with GDP growing by around 0.4% in the second quarter, it’s clear that the economy heads into the third quarter losing momentum.
With business optimism having been hit by the intensification of political uncertainty following the general election and commencement of Brexit negotiations, at the same time that households are battling against rising inflation, the indications are that the economy’s resilience is being tested’.
Canadian Dollar Rally Possible on Near-Term BOC Interest Rate Hike
The Canadian Dollar could be in for a significant surge in value in the near-term, depending on the actions of the Bank of Canada (BOC) when it comes to interest rates.
After seven years of frozen BOC interest rates, the central bank could finally be gearing up for a rate hike.
This growing market sentiment has mainly come from the actions of BoC Governor Stephen Poloz.
The most recent indication of Poloz’s intent has come from an interview with a German newspaper. Speaking to Handelsblatt, Poloz stated;
‘If we only watched inflation and reacted to inflation, we would never reach our inflation target, we’d always be two years behind in the reaction. We have to look at the rest of our indicators in the models that predict inflation’.
While hardly an explicit endorsement of a near-term rate hike, the fact that Poloz is considering a more varied approach to economic forecasting suggests that there could be more of an argument for raising interest rates going ahead.
Making the case for a rate hike sooner rather than later has been Scotiabank economist Derek Hold;
‘The BOC is going to have a serious credibility problem if it fails to raise interest rates…after providing such an aggressive turn in communications starting one month to the day ahead of the July [policy] meeting’.
In the event that the BOC does commit and raise interest rates in 2017, the Canadian Dollar could surge against the Pound.
Recent Interbank GBP CAD Exchange Rates
At the time of writing, the Pound to Canadian Dollar (GBP CAD) exchange rate was trading at 1.6733 and the Canadian Dollar to Pound (CAD GBP) exchange rate was trading at 0.5970.
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