GBP/CAD Forms Break and Retest Ahead of BoE Decision

Summary:
• The GBP/CAD price tilted lower on Thursday morning as investors refocused on the upcoming BOE interest rate decision

The GBP/CAD price tilted lower on Thursday morning as investors refocused on the upcoming BOE interest rate decision and Canada trade numbers. It fell to a low of 1.5571, which was about 1.07% below the highest point this week. This price is slightly higher than last month’s low of1.5343.

BoE interest rate decision

The GBP to CAD exchange rate pulled back slightly as investors focused on the latest BoE decision. The bank is expected to deliver another rate hike in a bid to fight the soaring inflation. Precisely, analysts believe that the bank will hike rates by 0.50%, which will be its biggest increase in over 27 years.

The main expectation is that the bank will deliver a dovish rate hike since the UK economy is in a difficult place. According to the IMF, it will have the slowest recovery in the G7. The agency recommended that UK policymakers should do whatever they could to fight inflation, even if these measures led to short-lived inflation and a high unemployment rate.

Recent data showed that the country’s inflation rose to 9.4% while the unemployment rate remained at 3.7%. Retail sales and consumer confidence declined sharply in June and July. Data published by the S&P showed that the manufacturing and services PMIs declined sharply in July. 

The GBP/CAD will also react to the latest Canada trade numbers that will come out on Thursday. Analysts believe that Canada’s trade surplus narrowed from over $5 billion in June to about $4 billion in July.

GBP/CAD forecast

The four-hour chart shows that the pound to CAD exchange rate has formed a break and retest pattern. It did that by having a bullish breakout above the important resistance at 1.5590, which was the highest point on July 19th. Now, it has dropped and retested this level, which is now the support. In price action analysis, a break and retest pattern is usually a bullish sign.

Therefore, there is a likelihood that the GBP/CAD price will bounce back after the BoE decision. If this happens, the key point to watch will be this month’s high of 1.5775. A drop below the support at1.5545 will invalidate the bullish view.