Can GBP Hold Above 1.87?

The Pound-Canadian Dollar could remain under pressure if the BoC delivers a hawkish rate hike, while the UK Budget may drive fresh Sterling volatility.

The Pound to Canadian Dollar (GBP/CAD) exchange rate was placed on the defensive last week amid a spike in global oil prices.

At the time of writing, the GBP/CAD exchange rate traded at CA$1.8704. Down roughly 0.7% from the start of last week’s session.

DAILY RECAP:

The Canadian dollar (CAD) enjoyed broad support last week, with the commodity-linked currency benefitting from a sharp acceleration in oil prices.

Brent crude climbed as high as $114 a barrel amid fears of a fresh escalation of tensions in the Middle East.

Domestic inflation data added to the currency’s positive momentum. Statistics Canada reported that annual consumer price inflation accelerated to 3.1% in September, strengthening bets the Bank of Canada (BoC) will raise interest rates following its October policy meeting.

Closing out the week was the publication of Canada’s latest retail sales data, which reinforced CAD’s gains after sales growth surprised to the upside in September.

The Pound (GBP) fell back against the Canadian Dollar this week but was able to hold its own against most of its other peers, courtesy of some robust macroeconomic data.

This was kicked off by the publication of an unexpectedly robust jobs report, which showed the UK’s unemployment rate falling in the three months to August.

Further support followed from September’s inflation figures. Annual consumer price growth accelerated from 3.1% to 3.5%, exceeding expectations for a more modest increase to 3.4%.

Together, the releases strengthened expectations that the Bank of England (BoE) will raise interest rates next month.

Sterling’s momentum faded towards the end of the week, however. A sharper-than-forecast drop in UK retail sales for September weighed on sentiment, offsetting some of the support provided by a surprisingly strong services PMI.

Closing out the week was the publication of Canada’s latest retail sales figures

Near-Term GBP/CAD Forecast: Hawkish BoC Rate Hike to Bolster the ‘Loonie’?

Turning to this week’s session, the Pound to Canadian Dollar (GBP/CAD) exchange rate may remain under pressure as the BoC delivers its latest interest rate decision.

An expected 25bps rate hike could help the ‘Loonie’ to consolidate its recent gains, particularly if it’s accompanied by some hawkish guidance.

Meanwhile, the spotlight for GBP investors will be on Chancellor John Healey’s first Autumn Budget, due to be delivered on Wednesday.

Investors will be looking for evidence that Healey can support economic growth without putting further strain on the public finances.

Should his plans fail to convince markets that this balance can be achieved, government borrowing costs could come under renewed pressure, potentially dragging Sterling lower.

Our currency coverage draws on live market data, official economic releases and published bank research.