The GBP/CAD has been in a downward trend this week as investors react to the recent interest rate decision by the Bank of Canada (BoC). The pair declined also because of the ongoing leadership contest to replace Boris Johnson as the UK prime minister. It is trading at 1.5512, which is about 10% below the highest point this year and 13% below the 2021 high.
BoC rate hike
The main catalyst for the GBP to CAD exchange rate was the recent interest rate decision by the Bank of Canada. The bank surprised the market this week when it decided to hike interest rates by 100 basis points to 2.25%. It was the biggest rate hike by a G7-member country.
In a statement, the bank’s governor said that the rate hike was necessary as the Canadian inflation has surged to the highest point in decades. Analysts expect that the bank will continue hiking interest rates this year even though they caution that doing so could push Canada to a deep recession.
Besides, the country’s households are some of the most indebted people in the G7. Also, data published last week showed that the labor market is struggling. While the unemployment rate dropped to 4.7%, the economy lost more than 38k jobs in July.
The GBP/CAD price has also retreated because of the leadership contest in the UK. The battle has now narrowed to Penny Mordaunt and Rishi Sunak. Most analysts expect that Sunak will become the next Prime Minister.
Turning to the daily chart, we see that the GBP/CAD price has been in a strong downward trend in the past few months. The decline continued this week even as the price of crude oil crashed to about $92 per barrel. Canada is one of the largest oil producers. It has moved below the 25-day and 50-day moving averages.
The price has risen slightly above the first support of the standard pivot points. Therefore, the bearish trend will likely continue in the coming days as investors target the support at 1.1520. This view is in line with my previous guidance on the GBPCAD price. A move above the pivot point at 1.1500 will invalidate the bearish view.