GBP/CAD hovers above 3-week low, focus sets on BoE and BoC

The GBP/CAD currency pair hovered above a 3-week low of 1.8415 on Tuesday ahead of the outcome of the Bank of England’s and the Bank of Canada’s policy meetings.

The Bank of England is expected to leave its benchmark interest rate intact at 3.75% at its April 30th meeting.

In March, the BoE highlighted global energy price risks from the Middle East conflict and stressed readiness to act to maintain 2% CPI inflation in the medium term.

Inflation projections showed potential increase to around 3% in Q2 and up to 3.5% in Q3.

Data by the Office for National Statistics showed that the UK Consumer Price Index had risen 3.3% year-on-year in March. It followed two consecutive months of 3% annual inflation and underscored the inflationary impact of the Middle East war.

Yet, BoE Governor Andrew Bailey noted that spare economic capacity could help contain inflation.

Although the central bank opted to leave interest rates unchanged, its March communication was perceived as more hawkish than markets had anticipated. Rate hike expectations for later this year have risen after the March announcement.

Meanwhile, the Bank of Canada is expected to keep its benchmark interest rate intact at 2.25% at its April 29th policy meeting.

In March, BoC policy makers acknowledged increasing downside risks to growth, while warning that inflation risks are rising, largely driven by elevated energy prices.

The key takeaway from the March decision was the removal of prior guidance suggesting that the current policy stance was appropriate. This change signaled that the central bank was now open to further tightening if inflation pressures persist.

BoC officials indicated they might look through the immediate inflation impact of geopolitical developments, but emphasized that sustained high energy prices would not be allowed to feed into broader and more persistent inflation.

The GBP/CAD currency pair was last down 0.08% on the day to trade at 1.8419.