Pound-Canadian Dollar could remain under pressure if UK growth slows sharply, while higher oil prices may provide additional support for the Loonie.
The Pound to Canadian Dollar (GBP/CAD) exchange rate trended lower last week as stronger-than-expected Canadian employment data helped the ‘Loonie’ overcome earlier pressure from falling oil prices.
At the time of writing, GBP/CAD was trading around CA$1.8829, down approximately 0.4% over the week.
DAILY RECAP:
The Canadian Dollar (CAD) initially wobbled last week as softer oil prices weighed on the commodity-linked currency.
Brent crude fell from around US$86 a barrel to a two-week low near US$79 through the first half of the week amid reports that the US and Iran could reach a ceasefire agreement.
The ‘Loonie’ then began to recoup these losses as doubts over a potential ceasefire saw oil prices climb back above US$80 a barrel.
The Canadian Dollar received a further boost at the end of the week following the publication of Canada’s latest employment report.
A stronger-than-expected increase in employment helped drive unemployment lower, providing fresh support for CAD.
Meanwhile, the Pound (GBP) struggled to establish a clear direction as a sparse UK economic calendar left Sterling without meaningful domestic drivers.
Calmer conditions in the UK bond market also contributed to the subdued price action.
Following several weeks of volatility linked to concerns over the government’s fiscal plans, benchmark 10-year gilt yields remained close to 5%, offering little fresh direction for Sterling.
External developments also provided limited impetus, with uncertainty surrounding negotiations over a potential US-Iran ceasefire encouraging investors to remain cautious.
Near-Term GBP/CAD Forecast: Slowdown in UK GDP to Sap Sterling?
Looking ahead, the Pound to Canadian Dollar exchange rate could face further pressure following the publication of the UK’s preliminary second-quarter GDP figures.
Markets expect quarterly growth to slow from 0.6% to 0.2%.
A sharper slowdown in economic activity could further reduce expectations for another Bank of England (BoE) interest rate hike later this year and weigh on Sterling.
Meanwhile, with little high-impact Canadian economic data scheduled, the ‘Loonie’ is likely to remain sensitive to oil prices.
If negotiations over reopening the Strait of Hormuz fail to produce an agreement, renewed gains in global energy prices could provide additional support for the Canadian Dollar
Our currency coverage draws on live market data, official economic releases and published bank research.
