Pound to Canadian Dollar Exchange Rate Recovery Limited Amid Strong Canadian Data
Investors bought Pound Sterling (GBP) back slightly from its cheapest levels at the end of last week, but the Pound to Canadian Dollar (GBP/CAD) exchange rate’s gains were limited as surprisingly strong Canadian data was published on Friday.
Last week, GBP/CAD opened at the level of 1.7412 and spent most of the week tumbling lower. On Thursday, GBP/CAD hit a low of 1.7176 before rebounding.
GBP/CAD attempted its recovery attempt on Friday but was kept flat as Canada’s latest data beat forecasts and kept pressure on the pair. The pair closed the week at the level of 1.7258 for the weekend and continued to trend near that level in early Monday trade.
Whereas last week’s UK inflation and retail sales results were highly disappointing, Canada’s were surprisingly strong.
In the end, Bank of England (BoE) interest rate hike bets fell and Bank of Canada (BoC) bets rose, making the Pound to Canadian Dollar exchange rate unappealing.
Pound (GBP) Exchange Rates Steady as Parliament Recess Set to Begin
Last week was a heavily bearish one for Pound (GBP) movement, as Brexit concerns piled up and worsened both political uncertainties and economic ones.
Divisions within UK Prime Minister Theresa May’s minority government appeared to deepen as her Brexit plan faced opposition from both hardline Brexit and soft Brexit supporters.
It worsened fears that the UK government may not even be able to pass a potential agreed Brexit deal into law, even if a deal were met between the UK and EU.
On top of this, Bank of England (BoE) interest rate hike bets fell last week in reaction to some disappointing UK inflation and retail sales results.
Economists still predict that the bank is more likely to hike UK interest rates in August than leave them frozen until 2019, but the bank outlook has certainly been clouded by the latest data.
On Monday, the Pound selloff appeared to have ended. As UK Parliament is due to begin its summer recess on Tuesday, markets expect that Brexit jitters may take a backseat for a little while. This helped Sterling to steady following a week of high volatility.
Canadian Dollar (CAD) Exchange Rates Strengthen on Bank of Canada (BoC) Bets
The Bank of Canada (BoC) hiked Canada’s interest rates for the second time this year during its last policy decision, and the latest Canadian data made investors more convinced that Canada’s interest rates could keep rising later this year.
Friday saw the publication of Canada’s June Consumer Price Index (CPI) inflation rates, and the May retail sales rates.
Canadian inflation remained at 0.1% month-on-month as economists expected, but the yearly inflation rate unexpectedly improved from 2.2% to 2.5% rather than the forecast 2.4%.
Retail sales printed well above expectations, surging from -0.9% to 2.1% month-on-month and from 2.1% to 3.6% year-on-year.
However, as the core inflation rate remained at 1.3% year-on-year rather than climbing to the expected 1.4%, the Canadian Dollar’s gains on the data were limited.
Pound to Canadian Dollar (GBP/CAD) Forecast: Trade Developments in Focus
The coming week’s economic calendar will be a little quieter in terms of UK and Canadian data, so unless there are surprising developments in political or geopolitical news the Pound to Canadian Dollar (GBP/CAD) could be in for a relatively calm week.
The Confederation of British Industry (CBI) will publish its UK business and factory data on Tuesday and Wednesday, while Canada’s latest budget balance figures will come in on Friday.
GBP/CAD is more likely to be influenced by potential news regarding the Brexit process, or developments regarding US trade protectionism or the US-China trade war.
The Canadian Dollar is a risky trade-correlated currency, so it is heavily influenced by concerns that US protectionism could negatively impact major economies around the globe.
However, if prices of oil, Canada’s most lucrative commodity, remain strong, investors may continue to find the Canadian Dollar appealing.
Looking further ahead, next week’s Canadian growth stats and of course the Bank of England’s (BoE) August policy decision will influence the Pound to Canadian Dollar (GBP/CAD) exchange rate outlook.