There is now growing speculation that the Bank of Canada will look to cut their base interest rate in the future.
How could a cut in interest rates affect the pound to Canadian dollar exchange rate?
This interest rate cut could weaken the Canadian dollar as it makes it less attractive for investors to hold in the future. Therefore, the pound to Canadian dollar rate could rise later this year, if the pound is in a position to capitalise.
The raising and lowering of an interest rate is a large contributor to the relative strength and weakness of a currency, expectations for the future surround a slowing global economy means Canada could be forced to cut their rates to help keep their economy on track.
This would potentially follow the US Federal Reserve which might also be seeking to cut interest rates in the future. It is well documented that the Bank of Canada will often be running in the slipstream of the United States.
Will central banks respond to the slowdown in the global economy?
As the global economy appears to be heading for a slowdown, central banks must respond with the appropriate policy to manage economic growth. A rate cut for Canada seems highly likely if the US is going down this road, it is the required response to a slowing economy.
What could also be interesting for the GBP/CAD exchange rate will be the outcome from the latest Brexit discussions, with the current focus surrounding who will be the next Conservative leader. A key component of any new leader must be their no-deal credentials, which will only serve to undervalue sterling, as the market is not a fan of the uncertainty no-deal creates.
The currency markets are also being driven by the trade war concerns, as investors position themselves for further uncertainties ahead. Unfortunately, if there is going to be a much wider global slowdown, it does seem reasonable to expect the UK will come off badly since it is in a very fragile economic and political position anyway.
Thank you for reading and please contact me directly to discuss further using the form below.