Yesterday’s session was very important from the point of view of the Canadian currency. The country released several important data, which, however, did not surprise. We are talking about both economic readings and the level of interest rates, which remained unchanged. The Canadian currency is also supported by rising oil prices. On the other hand, the pound is surprisingly strong. There are several reasons for this. Firstly, the finalised Brexit process. Second, a much faster rate of vaccination than the rest of Europe. Third, pretty good economic readings and the Bank of England’s firm distancing from the idea of negative interest rates.
- No major surprises from the Bank of Canada
- A faster pace of vaccination could support the pound
This means that in principle no further cuts are possible, which naturally could strengthen the pound as it is not threatened by further interventions from the BoE. This week brought the first voice from the BoE that the asset purchase programme is time-limited. It was also pointed out that the programme should be scaled back as soon as inflation starts to hit the right targets.
In this context, it is worth recalling that yesterday’s inflation reading came in above forecasts. So we have a levelled situation, as can be seen on the GBP/CAD chart. In theory, it would be time for another supply move, although in the longer term I would not rule out pressure to break out of the well respected trend line.
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