GBP/CAD: Pound Slides on Carney’s Hints of Possible Rate Cut

GBP/CAD is in free fall on Thursday, after Bank of England (BoE) Governor Mark Carney hinted that the central bank might cut interest rates if weakness in the British economy persists. The pair is now trading at 1.7000, down 0.46% as of 10:35 AM UTC.

The price is getting very close to the lowest level since mid-November. It will find strong support at 1.6969, which managed to withstand bears from January 3 to 6.

Earlier today, Carney said that the BoE could trim rates if the economy continues to suggest weakness. According to him, there was a debate among the Monetary Policy Committee (MPC) members on whether interest rates should be cut now.

At the previous two meetings, only two out of nine MPC members voted to cut rates from 0.75% to 0.50%, citing weak labor market data. The first time when the two policymakers gave their vote surprised investors, who expected consensus.

The UK’s gross domestic product (GDP) slowed last year, with many economic indicators still suggesting slow growth rates. Nevertheless, Prime Minister Boris Johnson’s victory last month triggered signs of optimism among consumers and businesses.

Carney said today at a BoE event:

“With the relatively limited space to cut Bank Rate, if evidence builds that the weakness in activity could persist, risk management considerations would favour a relatively prompt response.”

The governor said that the central bank could combine interest rate cuts with more asset purchases. The BoE is thinking about cutting the rate by 2.5 percentage points.

Traders have priced in a 14% chance of a rate cut at the central bank’s next meeting on January 30, which is twice as much as last week. The chance of rate cut by June is 50%.

XTB forex strategist David Cheetham commented:

“While this shouldn’t come as a huge surprise given that there has been a couple of MPC dissenters calling for lower rates at the past two policy meetings, it is the strongest hint yet for a rate cut in the not too distant future.”

On the other side, Carney shared several reasons why the central bank should keep the rates unchanged, citing signs that the global economy was stabilizing.

Bank of Canada Governor Stephen Poloz will hold a speech later today.


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