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Pound Canadian Dollar Exchange Rate Trended Higher after Dovish BOC Minutes

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Weaker Retail Sales Dent Pound Sterling (GBP)

Confidence in the Pound diminished on Friday morning in the wake of weaker-than-expected December retail sales figures. As consumer spending contracted -2% on the month concerns over the continued strength of the economy rose. This prompted the GBP CAD exchange rate to enter a narrow downtrend around 1.64.

(Previously updated at 15:08 on 19/01/17)

BOC Dovishness Prompted Canadian Dollar Downtrend

Some of the initial shine with which investors had regarded Theresa May’s speech on Brexit faded, knocking the Pound (GBP) off its bullish run against rivals. Markets welcomed the greater sense of clarity that the comments offered, even though there was some concern that May expressed a willingness to walk away without any new deal in place. However, even though December’s RICS house price balance disappointed expectations the Pound Canadian Dollar (GBP CAD) exchange rate returned to a stronger footing on Thursday.

Demand for the ‘Loonie’ (CAD) slumped sharply in the wake of the Bank of Canada’s (BOC) January policy meeting. Although policymakers did not opt to make any changes at this juncture the general tone of the minutes proved dovish, with the possibility of a fresh interest rate cut still on the table. With oil prices also under pressure thanks to the recent increase in the US rig count and rising production there was little reason to favour the Canadian Dollar.

GBP CAD Exchange Rate Forecast: Rising Canadian Inflation Could Boost ‘Loonie’

UK retail sales are forecast to have seen strong growth over the Christmas period, which could give the Pound further grounds for gains ahead of the weekend. High levels of consumer spending would suggest that domestic confidence remains robust, despite the uncertainty surrounding the UK’s future relationship with the EU. While consumer spending has helped to keep the economy in robust shape in recent months, though, this trend is likely to diminish in the coming months. Rising inflation and greater pressure on wages could limit the buying power and confidence of consumers.

Friday’s Canadian Consumer Price Index report could improve the outlook of the ‘Loonie’, however, as investors are anticipating a marked uptick in domestic inflationary pressure from 1.2% to 1.7%. Further progress towards the BOC’s 2% inflation target could encourage policymakers to maintain a more neutral policy bias for the time being. Any shortfall, on the other hand, would compound the dovish outlook of the central bank, especially if the economic policies of Donald Trump provoke fresh concerns of protectionism and isolationism.

Current Interbank Exchange Rates

At the time of writing, the Pound Canadian Dollar (GBP CAD) exchange rate was trending higher at 1.63, while the Canadian Dollar Pound (CAD GBP) pairing was slumped in the region of 0.61.