- Disappointing wage growth dragged on Pound
- Canadian Dollar advanced on lower US crude oil inventories
- GBP/CAD exchange rate rallied after ‘Brexit’ odds placed at 20%
- Canadian CPI bettered forecast to narrow gains of GBP/CAD exchange rate
Weaker UK Employment Data Weighed on Pound Sterling to Canadian Dollar (GBP/CAD) Exchange Rate
Confidence in Pound Sterling (GBP) was generally undermined this week as domestic data proved decidedly bearish. Although the Bank of England (BoE) had indicated at its last policy meeting that it would be taking a more dovish view on monetary policy, ahead of the European Union membership referendum in June, this nevertheless offered little encouragement to markets.
Investors were not impressed to find that unemployment had risen for the first time since last August in the three months to February. Although the increase of 21,000 was not enough to push up the corresponding Unemployment Rate this weaker showing raised concerns that ‘Brexit’ uncertainty was already beginning to drag on the UK economy. With businesses likely to dial back on new hiring and investment ahead of the referendum there are worries that the recent strength in domestic employment figures could be tailing off, as noted by Nick Palmer, statistician for the Office of National Statistics;
‘It’s too soon to be certain but, with unemployment up for the first time since mid-2015, and employment seeing its slowest rise since that period, it’s possible that recent improvements in the labour market may be easing off.’
As average weekly earnings also weakened, with wage growth unexpectedly slowing from 2.1% to 1.8%, the appeal of the Pound was greatly diminished on Wednesday.
Pound Sterling (GBP) Trended Higher on ‘Brexit’ Poll despite UK Missing Borrowing Target
Oil prices saw some volatile movement after Kuwaiti oil workers ended a multi-day strike, which had cut the country’s output by 60% at the start of the week. With oil producers looking unlikely to make any meaningful agreement to limit global output in the wake of the failed meeting in Doha the value of crude rapidly returned to a downtrend. Even so, a larger-than-expected decline in US crude inventories helped to shore up the commodity on Wednesday, with only 2.08 million barrels being added as opposed to 6.63 million in the previous week. This more encouraging result prompted the ‘Loonie’ (CAD) to strengthen, pushing the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate to a fourteen-month low of 1.8114.
Downwards pressure was added to the GBP/CAD currency pair on Thursday with the release of the latest UK retail and public finance data. Retail Sales declined further than traders had anticipated, dropping from 3.7% to 1.8% on the year in March. This suggested that consumer sentiment had weakened substantially, a development that was largely attributed to increasing economic uncertainty ahead of the ‘Brexit’ referendum. More disappointing, however, was the news that the UK had overshot its borrowing target for the 2015-2016 fiscal year by 1.8 billion Pounds. This was an embarrassing turnout for Chancellor George Osborne, as Ross Campell of The Institute of Chartered Accountants in England and Wales commented;
‘It was always apparent that there was very little margin for error and that any small change in assumptions for public expenditure plans would make it difficult to hit the Chancellor’s £72.2bn deficit target. Unless the UK economy, against the backdrop of a global economy that is unwilling to help the Chancellor dig himself out of out of his fiscal hole, improves somehow, it looks like the notion of returning to surplus by 2020 is highly improbable.’
However, after an analysis of polls by the Number Cruncher Politics Referendum Forecast indicated that the odds of a British exit from the EU had dropped to only 20% the Pound rallied strongly, entering a bullish run across the board.
GBP/CAD Exchange Rate Gains Limited after Canadian CPI Bettered Forecast
The Canadian Dollar softened further on Friday morning ahead of the latest raft of Canadian data, with markets anticipating fresh signs of weakness within the domestic economy. Ultimately investors saw an upside surprise, with both Retail Sales and Consumer Price Index figures bettering forecast. With inflationary pressure showing only a modest decline on the year in March the ‘Loonie’ was shored up against rivals, as confidence in the outlook of the Canadian economy improved. This stronger showing was seen to support the less dovish position adopted by the Bank of Canada (BOC) at its April policy meeting, encouraging hopes that interest rates will remain on hold for longer.
While investors continued to favour the Pound in the absence of further ‘Brexit’ volatility, taking advantage of the currency’s recent weakness, the gains of the GBP/CAD exchange rate were a little more limited heading into the weekend.
Current GBP, CAD Exchange Rates
At the time of writing, the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate was on a narrow trend around 1.8230, while the Canadian Dollar to Pound Sterling (CAD/GBP) pairing was on a slight downtrend at 0.5481.