The pound to Canadian dollar interbank exchange rate stands at 1.7162 today. This is its highest in over 26 weeks, or since May 17th 2019.
By comparison, back on August 12th, British sterling was as low as 1.5891 versus the so-called loonie dollar. So it’s since risen by 7.99%, or by over 12.5 cents.
This may benefit you, when you transfer money to Canada, because when you exchange pounds for Canadian dollars, you could get a higher total than in the last 26 weeks.
To stay up-to-date with the pound to Canadian dollar interbank exchange rate, visit our Rates & Tools page. Here, select ‘GBP’ (Great British Pound) to ‘CAD’ (Canadian Dollar).
Also, to check what’s affecting the value of sterling versus the loonie dollar recently, go to our GBP to CAD Exchange Rate Updates page. Here, click the latest article for the news.
One reason why the GBP to CAD interbank exchange rate has reached this 26-week high is because the Bank of Canada now looks likelier to cut interest rates, below their current 1.75%.
However, looking to the next few weeks, sterling’s value versus the loonie dollar could be affected, because yesterday’s UK election debate was a near-draw, according to the opinion polls.
In addition, the pound could be affected against the Canadian dollar on the interbank market, as today the Bank of England holds its Inflation Report Hearings, about the UK’s price outlook.
Pound to Canadian Dollar Rate Rises, as BoC Looks Likelier to Cut Interest Rates
As I mention, one reason why sterling has hit this 26-week high versus the Canadian dollar on the interbank market today is because the Bank of Canada (BoC) looks increasingly likely to cut interest rates below their current 1.75%.
This follows a speech yesterday by BoC Senior Deputy Governor Carolyn Wilkins, in which she highlighted the BoC’s capacity to ease monetary policy, reports The Globe & Mail.
Speaking on Tuesday evening, Ms. Wilkins highlighted that, although Canada’s economy remains “relatively well overall”, the global economy outlook faces “immense challenges”.
These include the ongoing trade war between Canada’s neighbour and closest trading partner, the United States, and China, which over the past 16 months has noticeably slowed the world’s economic growth.
As a result, the BoC Senior Deputy Governor said yesterday that Canada’s central bank has room to cut interest rates below their current level.
Ms. Wilkins remarked that Canada’s monetary policy “may be relatively low now”, but the BoC “still has room to manoeuvre” and that “lowering rates could provide some insurance against downside to inflation”. So this raises the likelihood of a reduction.
Moreover, Ms. Wilkins took a step further, and raised the possibility that the BoC could start its own form of extraordinary stimulus, called Quantitative Easing (QE).
This would involve flooding the financial markets with Canadian dollars, to reduce the cost of a loan. Yesterday, Ms. Wilkins said that the BoC has tools like “extraordinary forward guidance and large-scale asset purchases”.
The BoC looks likelier to cut interest rates, first because Canada’s central bank is one of the world’s only major central banks not to have reduced borrowing costs recently.
For example, in recent months, the US Federal Reserve, European Central Bank, and Reserve Banks of Australia and New Zealand have all cut interest rates. So the BoC may feel increasingly obliged to follow suit.
Second, Canada’s central bank could ease monetary policy, because Canada’s most recent economic data points to growing weakness.
For example, at the BoC’s October meeting, it cut its GDP (Gross Domestic Product) growth forecasts for Canada in 2019/20. Moreover, Canada’s factory orders fell by 0.2% in September, said StatsCan recently, which could weigh on Canada’s exports.
Following Ms. Wilkins’ speech yesterday, the financial markets have increased the probability that the BoC will cut interest rates by March by 4%, up to 64%. So there’s a roughly 2/3rds chance that Canada’s interest rates will fall below 1.75% in the next few months.
This would make investing in CAD-denominated assets less profitable for investors, thereby weakening the loonie dollar.
GBP to CAD Rate Could Be Affected, as UK Election Debate Points to Draw
Elsewhere, looking over the next three weeks or so, the pound to Canadian dollar interbank exchange rate could be affected, because yesterday’s first UK general election debate was considered a draw, say the earliest opinion polls.
This debate was between incumbent Prime Minister and Conservative Party leader Boris Johnson, and main opposition Labour Party leader Jeremy Corbyn.
Throughout the hour-long debate, broadcast by ITV on Tuesday evening, the two men sparred over their parties’ respective positions on Brexit, the NHS, and the economy.
Mr. Johnson focused on his pledge to “get Brexit done”, while Mr. Corbyn promised to negotiate a new deal with the EU, and put this to a public referendum, within six months.
However, the financial markets consider that neither leader beat the other decisively. For example, Tim Bale, professor of politics at Queen Mary University of London, says that the debate was "A pretty messy score draw. Hardly two men at the top of their game."
Mr. Johnson and Mr. Corbyn will have another opportunity to debate each other, at a BBC broadcast in the coming days.
Moreover, according to pollster YouGov’s survey of 1,600 people following the debate, 51% of people thought that Mr. Johnson had won, while 49% favoured Mr. Corbyn’s performance, according to Yahoo News.
This may affect the pound to Canadian dollar interbank exchange rate, because as a result, the Tories’ current 17% lead in the opinion polls may fall, raising the odds of a so-called ‘hung’ Parliament.
After all, if the Tories currently hold a 17% lead over Labour, says YouGov’s latest poll, yet the two leaders are thought to have tied yesterday, some people could switch votes.
If this results in no single party winning a majority in Parliament on December 12th’s vote, then this may add uncertainty to the UK’s future economic and political direction, as well as the UK’s Brexit policy.
This may influence sterling’s value over the Canadian dollar on the interbank market, because in general the financial markets want the UK election result to be decisive.
Investors want one single party to win, to form a stable government, and finalise Brexit one way or the other, to move on to negotiating the UK’s future trade deal with the EU. This may bring clarity for British businesses.
However, following yesterday’s tied debate result, if one single party fails to secure a majority of MPs at next month’s vote, the UK’s Brexit and policy uncertainty could continue.
Parliament may remain in deadlock over Brexit, as it’s been in recent months, while the UK’s domestic priorities, like schools, transport and hospitals, may be neglected. So this possibility could affect sterling.
Sterling Vs Canadian Dollar May Be Influenced, by BoE’s Inflation Report Hearings
Turning to today, the pound’s value versus the loonie dollar on the interbank market may be impacted, by the Bank of England’s (BoE) Inflation Report Hearings.
Here, BoE Governor Mark Carney and his colleagues on the Monetary Policy Committee (MPC) may offer their insights into the UK’s inflation outlook, and the possibility that the BoE could cut interest rates below 0.75%.
In particular, BoE executives may offer their view on the fact that, in October, the UK’s inflation fell by 0.2% to 1.5%, further below the central bank’s official 2.0% target.
In general, low inflation in a country signals decelerating economic momentum. This is because the country’s businesses don’t feel confident enough in the outlook to raises prices, thereby lowering inflation.
As a result, the Old Lady of Threadneedle Street, as the BoE is also affectionately known, could further hint that it intends to cut UK interest rates in the foreseeable future, back to 0.5%.
Already, at the BoE’s latest monetary policy meeting, two of the MPC’s nine members voted to reduce UK borrowing costs. This suggests that there’s a growing trend towards lower UK monetary policy.
If the BoE refers to the UK’s falling inflation, or the possibility of lower interest rates today, this could affect the pound to Canadian dollar interbank exchange rate.
This is because, when the UK’s central bank cuts interest rates, the world’s money managers get lower returns on investment for buying British assets. This prompts investors to sell the pound, thereby weakening the GBP’s value.
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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or Contact Us.