Pound Canadian Dollar (GBP/CAD) Exchange Rate Forecast: Trend Broadly Higher

The Canadian Dollar (CAD), meanwhile, traded in a mixed range following the Bank of Canada (BoC)’s decision to cut interest rates.

At the time of writing, GBP/CAD is trading at C$1.7775, having risen by approximately 0.3% over the course of the week.

Pound (GBP) Gains Capped by Risk Aversion

The Pound (GBP) traded up against risk-averse peers last week, though the currency’s performance in a range of other exchange rates was mixed. While positive business data in the first half of the week inspired tailwinds, downbeat statistics from the Confederation of British Industry (CBI) capped subsequent gains.

GBP trade was inconsistent on Monday and Tuesday, as a lack of domestic UK data left Sterling to trade on external factors. An uneventful couple of days resulted in mixed movement across Pound exchange rates.

Midweek however, the UK’s manufacturing PMI exceeded forecasts, printing at 51.8 rather than 51.1 as forecast. Service sector activity in the UK also expanded, albeit by marginally less than expected.

Economists’ assessments of the data were upbeat. S&P Chief Business Economist Chris Williamson remarked:

‘Companies often commented on an improvement in market confidence and the securing of new contracts, following some reports of a pause in client spending decisions prior to the general election.’

On Thursday, however, business optimism and industrial trends orders missed forecasts, both printing in negative figures. The CBI analysis of the data was measured, although the Confederation’s lead economist acknowledged that manufacturing sentiment in the UK had cooled amid reduced demand.

Friday saw the Pound trade steadily against its peers, unable to regain Thursday’s losses. Ahead of the release of key US inflation data, a risk-off mood capped Sterling optimism.

Canadian Dollar (CAD) Faces Headwinds as BoC Cuts Interest Rates

The Canadian Dollar succumbed to losses against the majority of its peers last week, as the Bank of Canada’s decision to cut interest rates made for a dovish comparison with the Federal Reserve and other major central banks.

Nevertheless, the ‘Loonie’ picked up against both the Pound and the Euro (EUR) on Tuesday, despite a fall in the price of crude oil and relative weakness in the US Dollar (USD), with which CAD is positively correlated. Boosting the currency may have been an upbeat economic assessment from the International Monetary Fund (IMF):

Concluding its 2024 Article IV Consultation with Canada, the IMF said:

‘Inflation has come down almost to target, while a recession has been avoided, with GDP growth cushioned by surging immigration even as per capita income has shrunk.

Meanwhile, the financial sector remains resilient, with banks well capitalized and liquid.’

Midweek, the ‘Loonie’ slumped – the Canadian Dollar downtrend extended into Thursday’s session in several exchange rates. The BoC’s interest rate cut, although expected, most likely weighed upon CAD, as the central bank’s dismal economic forecasts contrasted with the IMF’s assessment.

‘The dovish language in the releases paints a picture of officials who are growing more worried about the likelihood of recession,’ reported Royce Mendes, of Desjardins Group.

Into Friday, the Canadian Dollar was able to recoup some of its losses, although tailwinds were scarce ahead of the release of key US inflation data. An uptick in the price of crude oil may have helped CAD to climb.

GBP/CAD Exchange Rate Forecast: Volatility to Mark Bank Decision Week?

Looking ahead, this week may see some turbulence in the currency markets as both the Bank of England (BoE) and the Federal Reserve are due to announce their latest monetary policy decisions.

Ahead of either event, the release of Canada’s latest GDP data could influence GBP/CAD. If economic expansion slowed in May, the ‘Loonie’ could weaken; on the other hand, evidence of further expansion in June may cap losses.

Subsequently, if the Federal Reserve keep interest rates on hold on Wednesday evening, the performance of USD and its trading partners may depend upon the central bank’s tone. If a hawkish note is struck by Fed Chairman Jerome Powell, the ‘Greenback’ may climb, boosting the positively-linked CAD and subduing GBP/CAD.

Into Thursday, an interest rate cut from the Bank of England could inspire headwinds given the division over the likelihood of monetary policy loosening. If the bank keeps interest rates on hold, however, GBP may firm.