At the time of writing, GBP/CAD is trading at C$1.7806, having climbed by 0.4% in the past 24 hours.
The Pound (GBP) trended higher against its peers midweek, propelled upwards by higher-than-expected inflation data which forced markets to reconsider the likelihood of an interest rate cut from the Bank of England in August.
While annualised core inflation and headline inflation for the month of June alone printed as forecast, the headline reading for the past twelve months remained at 2% rather than dipping to 1.9% as expected. The Office for National Statistics (ONS) reported an upward contribution to inflationary pressures from restaurants and hotels, as well as transport.
Although the BoE’s target reading is 2% and June’s data matches the desired level, uneven price pressures are likely to complicate the central bank’s outlook on inflation. While some analysts argue that inflation in hospitality is an outlier prompted by profit motives during Taylor Swift’s UK tour, others are unconvinced.
Cathal Kennedy, senior UK economist at RBC Capital Markets, observes: ‘If an August rate cut was ‘touch and go’ before this morning’s data then it’s even more so now.’
Meanwhile, Deutsche Bank chief UK economist Sanjay Raja remarks: ‘We now think that an August rate cut is finely balanced. A lot will now depend on the strength of the May wage and unemployment data.’
Officially, market expectations for an interest rate cut next month have dropped from a 50% chance to a 35% chance. The BoE itself has been noncommittal in its forward guidance, with Chief Economist Huw Pill saying the timing of the first rate cut remains an open question.
Canadian Dollar (CAD) Sinks amid Bearish Investor Sentiment
The Canadian Dollar (CAD) continued to face headwinds yesterday as ‘Loonie’ investors digested Tuesday’s mixed inflation data.
Weaker-than-expected headline inflation prompted concerns of a dovish Bank of Canada (BoC); yet annualised core inflation climbed unexpectedly, to 1.9%. Meanwhile, both core and headline inflation contracted on a monthly basis.
Immediately following the release, CAD traded sideways against its peers. Traders were hesitant to place bets on the likelihood of the BoC cutting interest rates in the near term while core price pressures remained sticky.
Meanwhile, weakness in the US Dollar (USD) weighed upon the Canadian Dollar, given the two currencies’ strong positive correlation. Lower-than-forecast US retail activity dented ‘Greenback’ sentiment midweek, alongside proliferating bets for an interest rate cut in September from the Federal Reserve.
Potentially capping CAD losses, however, was an uptick in the value of crude oil. West Texas Intermediate (WTI), Canada’s main export, devalued on Tuesday only to rise in value on Wednesday.
Analysts assessed that a weaker US Dollar had contributed to rising oil prices, alongside reduced supply amid diminishing US stockpiles. The American Petroleum Institute (API) reported a decline of 4.4 million barrels in weekly crude oil stock last week, compared with expectations of a 33,000-barrel decline.
GBP/CAD Exchange Rate Forecast: UK Jobs Data in Focus
Into today, the latest UK jobs report will likely be the main trading stimulus for the Pound Canadian Dollar exchange rate. Unemployment is expected to have remained unchanged at 4.4% in May, while the economy is thought to have added 40K jobs.
If the data prints as expected, GBP could climb. A secure jobs market relieves pressure on the Bank of England to reduce interest rates, reinforcing expectations of hawkish policy action.
Meanwhile, a lack of Canadian data leaves the ‘Loonie’ to trade upon external factors. The latest initial jobless claims report from the US could affect CAD exchange rates if the US Dollar sinks on rising unemployment; however, an increase in US manufacturing activity could buoy the ‘Greenback’, consequently boosting the Canadian Dollar.
