Despite coming under pressure in the wake of an uninspiring Spring Budget the Pound to Canadian Dollar exchange rate nevertheless made some modest gains on Thursday morning.
Investors were disappointed to find that the Office for Budget Responsibility had lowered its forecast for wage growth in the coming years, suggesting that the squeeze on incomes will be more severe.
As the economy has already shown signs of slowing in recent data the prospect of consumer spending also weakening weighed heavily on the appeal of the Pound.
Commenting on the report, Torsten Bell, Director of the Resolution Foundation, noted:
‘While the Office for Budget Responsibility at least delivered some good news on borrowing, the family finances picture has actually deteriorated since the autumn statement. Britain is set for a return to falling real pay later this year, with this decade now set to be the worst for pay growth since the Napoleonic wars.’
Pound exchange rates may struggle to find any particular support in the near term as Brexit-based uncertainty is set to continue as the government’s Article 50 bill is passed back to the House of Commons.
Some degree of volatility is likely next week as the Bank of England (BoE) meets for its latest policy decision, even though the only changes are likely to be in the wording of the meeting minutes.
If policymakers continue to adopt a dovish view on monetary policy and the outlook of the domestic economy this would give investors fresh reason to sell out of Sterling.
The Pound to Canadian Dollar exchange rate could benefit, however, if the BoE shows any indication that it is considering making changes to its loose monetary policy.
Confidence in the ‘Loonie’, on the other hand, diminished after a surprisingly sharp increase in US crude oil inventories.
As stockpiles rose by 8.2 million barrels on the week the price of oil slumped substantially, with Brent crude dipping briefly below the US$52 per barrel mark.
With US production continuing to limit the impact of the OPEC cuts the appeal of the commodity looks set to weaken further, to the detriment of the Canadian Dollar.
Rising odds of an imminent Federal Reserve interest rate hike have also kept market risk appetite limited, with a stronger US Dollar helping to boost the GBP CAD exchange rate.
Further downside pressure could be in store for the Canadian Dollar ahead of the weekend, as expectations for February’s Canadian labour market data are not overly positive.
While the unemployment rate is forecast to hold steady on the month the net change in employment figure is expected to show 15,500 less people in jobs.
Any indications of weakness within the labour market are likely to see the ‘Loonie’ trend lower across the board, particularly if the latest US payrolls report encourages speculation that the Fed will tighten policy sooner rather than later.
At the time of writing, the Pound Sterling to Canadian Dollar exchange rate was trending higher in the region of 1.64, up 0.29% on the day’s opening levels.