26 Apr 2021
This week is set to be a big one for the Canadian and U.S. economic data. The GBP/CAD rate is trading at 1.7330 at time of writing, after last week’s volatile trading. The pair is expected to return to highs in the coming days with the decline of the USD. On the other hand, the Sterling is outperforming the other European currencies. As a result, the Loonie’s underperformance is risked.
Last week, the Bank of Canada (BoC) reduced the pace at which it buys government bonds again, for a second time, and went on to suggest that in 2022 the interest rate may rise too. The BoC’s weekly purchases of Canadian government bonds were lowered to C$3BN from C$4BN following stronger-than-expected economic data from the Quarter One. “Economic resilience appears to be waning as we look for retail sales to underperform flash estimates with a 3.5% advance, after similar disappointment on manufacturing and wholesale sales,” strategists pointed out.
Moreover, the Pound-to-Euro exchange rate is at 1.1480 after edging lower last week. ING strategists said, "Data-flow out of the UK was once again supportive for sterling, as strong retail sales, good PMIs, inflation rising (although slightly below expectations) and unemployment edging lower all endorsed the strong recovery narrative.” The Sterling was impacted by last week’s late Euro rally but a swift recovery of 1.15 is expected later on this week.
“In our view, EUR/GBP has plenty more room to drift lower. The starting point is EUR/GBP remains highly overvalued relative to the level implied by real interest rate differentials.”
Furthermore, the EUR/USD rate is at 1.2106, with the recovery set to continue. The Euro was supported by the IHS Markit’s Flash PMI surveys of the Eurozone’s services and manufacturing sectors, which highlighted new highs for April.