Surprise Surge in Canadian Inflation Dents Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate
UPDATE: An unexpected jump in the headline Canadian consumer price index left the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate on a weaker footing Friday afternoon.
Investors were caught off guard as inflation surged from 2.5% to 3.0% on the year in July, raising the likelihood of the Bank of Canada (BOC) tightening monetary policy further in the months ahead.
This prompted the GBP/CAD exchange rate to extend its losses as confidence in the Canadian economy strengthened.
Pound Canadian Dollar (GBP/CAD) Exchange Rate Under Pressure From Brexit Uncertainty
Lingering Brexit-based uncertainty kept the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate under pressure ahead of the weekend.
A continued lack of progress on key issues such as the Irish border has weighed on the appeal of Pound Sterling (GBP), with the odds of a no deal Brexit remaining high.
Markets remain wary of the prospect of the UK departing the EU without any deal in place, given the underlying vulnerability of the domestic economy.
As analysts at Nomura noted:
‘In 2018 there has been weakening Euro area growth and populism has been surging.
‘These are the conditions which might convince centrist parties in the EU-27 (which still hold power in most countries) to be less flexible to the UK.
‘Given the difficulties for the UK in compromising further from its current plan, this could add to volatility over coming months and indeed into the transition period if these characteristics persist.’
Unless there are signs that the two sides are moving closer to an agreement GBP exchange rates are likely to remain biased to the downside.
Steady Canadian Inflation to Limit GBP/CAD Exchange Rate Upside
Anticipation for July’s Canadian consumer price index data also put pressure on the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate.
While no change is forecast for the headline inflation rate this could still offer a boost to the Canadian Dollar (CAD), which has been under pressure thanks to wider market risk aversion.
However, the core consumer price index is expected to show a modest acceleration from 1.9% to 2.0% on the year.
This could encourage the Bank of Canada (BOC) to take a more optimistic view in the months ahead, raising the prospect of further monetary tightening.
On the other hand, any signs of softening price pressures may drive CAD exchange rates into a fresh slump.
With the mood of the oil market looking fragile in the wake of Wednesday’s unexpected increase in US stockpiles the commodity-correlated Canadian Dollar remains vulnerable.
Solid CBI Surveys Forecast to Boost Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate
Looking ahead, the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate could find a rallying point on the back of the latest CBI industrial trend orders index.
An uptick in industrial orders could increase confidence in the outlook of the UK economy, especially if export order books show signs of improvement.
Increased demand may give the manufacturing sector a much needed boost at the start of the third quarter.
If Thursday’s distributive trades survey also paints an encouraging picture of retail demand and consumer spending the Pound may find further support against its rivals.
However, any fresh signs of weakness within the UK economy would leave the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate exposed to fresh losses.