The pound has continued to slowly drop in value against the Canadian dollar over recent weeks and is currently sat at a 5 month low.
Sterling weakness due to uncertain UK political landscape
I believe that the majority of this latest movement can be put down to sterling weakness and the continuing uncertainty surrounding the political landscape and how Brexit may pan out in the coming months.
Unfortunately for those looking to buy Canadian dollars in the near future it does seem that we may end up with this uncertainty hanging over our head for the foreseeable future, so those holding out for a huge spike in GBP/CAD exchange rate may have quite a wait on their hands.
In terms of Canadian economic data to be aware of, there is little light at the end of the tunnel for those looking to buy Canadian dollars as we have recently seen a shift in sentiment as to where investors feel Canadian interest rates may well move next.
How could an interest rate hike benefit the Canadian dollar?
Previously, the general feeling in the markets had been that there would be expectations of an interest rate hike by the end of 2020, for those readers who aren’t aware, an interest rate hike is generally seen as positive for a currency and even the mere suggestion or speculation of a hike can lead to strength for that given currency. The reason behind it is that it will make it more attractive to investors.
With a recent drop off in growth forecasts for Canada there are now a number of analysts suggesting that they would not be surprised to see a rate cut (which could be negative for the Canadian dollar) before the end of 2019.
Next week we have Canadian Inflation and Retail Sales due out, so they will be two data sets to watch keenly, along with the Bank of England Interest rate decision and meeting minutes, no changes to rates are expected in the UK.
Pound to Canadian dollar forecast
With all this in mind if I had to make a prediction I would anticipate a fairly flat if not negative GBP/CAD in the near term with the possibility of the Pound claiming back some ground later in the year should there be a little more political certainty and a clearer path for Brexit in the UK coupled with a potential interest rate cut in Canada later in the year.
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