The Pound-Canadian Dollar could remain supported if BoE hike bets persist, although stronger Canadian growth and firm oil prices may lift the Loonie.
The Pound Canadian Dollar (GBP/CAD) exchange rate strengthened on Monday as soaring UK diesel prices fuelled Bank of England (BoE) interest rate hike bets.
At the time of writing, GBP/CAD was trading at CA$1.8772, up 0.2% on the day.
Pound to Canadian Dollar (GBP/CAD): 1.878388 (+0.29%)
Euro to Canadian Dollar (EUR/CAD): 1.61084 (0.00%)
Dollar to Canadian Dollar (USD/CAD): 1.41718 (+0.23%)
DAILY RECAP:
The Pound (GBP) strengthened on Monday as UK diesel prices rose to a record high, fuelling bets that the Bank of England will tighten monetary policy in the coming months.
Diesel was selling at 199.18p per litre on average in forecourts across the UK on Monday, exceeding the all-time high struck in June 2022 following Russia’s invasion of Ukraine.
High diesel prices tend to feed through into the wider economy, as businesses offering goods or services that rely on diesel vehicles for transportation will likely increase prices to offset the rising cost of fuel.
As a result, the likelihood of higher inflation saw investors bet on a more hawkish approach from the BoE.
Meanwhile, the crude-linked Canadian Dollar (CAD) found some support on Monday as oil prices crept higher.
The US rejected Iran’s peace proposal over the weekend, which would have reopened the Strait of Hormuz – a vital waterway for oil tankers – with this latest development pushing up oil.
However, while Brent crude climbed to $108 per barrel, reapproaching the multi-month highs reached earlier in September, WTI crude saw a more modest upswing. The North American benchmark remained around $10 below its early-September high, limiting the support for the Canadian Dollar.
Near-Term GBP/CAD Forecast: Canadian GDP to Support the ‘Loonie’?
Looking forward, Canada’s latest GDP data is the focus on Tuesday. July’s final data is expected to confirm that growth stalled, while markets are anticipating a recovery in August, according to the preliminary figures. If the data prints as expected, CAD could receive a boost.
Meanwhile, oil price dynamics will likely continue to have a large influence on the ‘Loonie’. If continued pessimism about the Middle East crisis keeps crude prices elevated, the Canadian Dollar may attract support.
As for Sterling, UK data is thin on the ground on Tuesday, leaving GBP investors to focus on domestic news. Any headlines coming out from the Labour Party Conference could impact the British currency.
Additionally, Bank of England policymaker Alan Taylor is due to deliver a speech, with his comments potentially impacting the Pound. Any dovish remarks may dent GBP.
Our currency coverage draws on live market data, official economic releases and published bank research.
