Oil Prices Lift The Loonie

The Pound to Canadian Dollar (GBP/CAD) exchange rate traded lower last week as UK political developments drove volatility while rising oil prices supported the commodity-linked Canadian Dollar.

At the time of writing, GBP/CAD was trading at CA$1.8861, down around 0.5% on the week.

DAILY RECAP:

The Pound (GBP) had a quiet start to the week as a sparse UK economic calendar left Sterling lacking fresh direction, opening it up to losses against stronger rivals.

Comments from Bank of England Governor Andrew Bailey added to the subdued mood after he warned about the UK’s long-standing growth challenges. As a result, GBP/CAD slid to a near two-week low.

Sterling surged in the middle of the week as markets reassessed expectations for the next Chancellor under incoming Prime Minister Andy Burnham.

Confidence improved after Shabana Mahmood emerged ahead of Ed Miliband as the favourite for the role, with investors viewing Mahmood as the more fiscally credible candidate.

However, Sterling couldn’t hold on to its gains, despite data confirming the UK economy expanded by 0.1% in May.

Meanwhile, the crude-linked Canadian Dollar (CAD) strengthened early last week as renewed conflict in the Middle East saw oil prices climb higher.

This propelled the ‘Loonie’ to a near two-week high against the Pound.

Midweek, CAD faced some pressure following the Bank of Canada’s monetary policy decision. The bank left rates unchanged and struck a broadly cautious tone, thereby dampening interest rate hike bets.

However, the Canadian Dollar was able to quickly regain lost ground on Thursday, and extended its upside on Friday, as crude prices continued to rise.

Near-Term GBP/CAD Forecast: Inflation Figures in Focus

Looking ahead, the spotlight for GBP investors will first fall on the UK’s latest labour market report, due on Tuesday.

If the data points to a resilient jobs market, with unemployment unchanged and wage growth remaining robust, Sterling may find fresh support.

Attention will then turn to Wednesday’s UK consumer price index. Should June’s figures show headline inflation eased further, the Pound may come under renewed pressure.

The week’s final UK releases arrive on Friday, with June’s retail sales data and the preliminary PMIs for July. A slowdown in consumer spending, coupled with another contraction in the services sector, could see Sterling end the week on the back foot.

As for the Canadian Dollar, the week kicks off with Canada’s latest CPI. A forecast cooling of inflation in June could dent CAD.

However, the crude-linked currency may attract support throughout the week if the US-Iran conflict continues to intensify, driving up the price of oil.