The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate weakened overnight as the ‘Loonie’ was supported by comments made by Bank of Canada Governor Stephen Poloz and dovish remarks by US Federal Reserve Chairman Janet Yellen.
The Pound Sterling to Canadian Dollar (GBP/CAD) Exchange Rate Slipped to a Session Low of 1.921
Bank of Canada Governor Stephen Poloz took the markets by surprise again on Tuesday due to the tone of his comments at a speech in Ontario.
‘The downside risk insurance from the interest rate cut buys us some time to see how the economy actually responds. The negative effects of lower oil prices hit the economy right away. The various positives- more exports because of a stronger US economy and a lower Dollar, and more consumption spending as households spend less on fuel – will arrive only gradually, and are of uncertain size,’ said Poloz.
Mr Poloz hinted that the interest rate cut made in January might be enough for now. The comments caused economists to lower their expectations for another rate hike occurring in March.
‘It gives an indication that the firm pricing of a rate cut in March needs to be revisited. We were comfortable with the idea there would be a rate cut prior to him talking. We now have a little less conviction,’ said the chief Canada macro-strategist at TD Securities.
The Canadian currency also received a boost from the dovish comments made by Federal Reserve Chairman Janet Yellen. She told the US Congress that an increase in interest rates was unlikely to occur over the next couple of FOMC meetings. Following the testimony the Canadian Dollar and other commodity based currencies surged higher against the weakened ‘Greenback’.
China Data Supports Commodity Linked Assets
The ‘Loonie’ also received some support from data out of China. The HSBC Flash Manufacturing Purchasing Managers Index rose to a reading of 50.1. The figure beat economist forecasts for a reading of 49.5. In a PMI, any figure above 50 indicates expansion. Following the release of the data, most commodity based currencies ticked higher.
Further losses for the Pound were restrained as Bank of England policy makers reaffirmed that interest rates could increase sooner than forecast and said that inflation is likely to rally strongly back to its target of 2% over the next two years. A report released earlier in Wednesday’s session also supported as it showed that Mortgages approved in the UK rose in January.
Market attention will now turn to Thursday’s Canadian Inflation data and the UK’s GDP second estimate report.
