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Pound Sterling to Canadian Dollar Exchange Rate Outlook Fails to Improve as UK Inflation Comes in Short

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Pound to Canadian Dollar Exchange Rate Tumbles as Oil Prices and Risk-Sentiment Bolster ‘Loonie’

The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate has been tumbling for most of the week so far, as the Canadian Dollar (CAD) has benefitted from higher risk-sentiment to sustain gains versus a limp Pound (GBP).

Since opening at the level of 1.7172 this week, GBP/CAD has tumbled over a cent already and has lost last week’s gains.

This morning, GBP/CAD briefly touched on a weekly low of 1.7033, but at the time of writing was trending closer to the level of 1.7056.

The Pound outlook hasn’t changed much this week, as Brexit uncertainties persist and UK data continues to disappoint.

Meanwhile, the trade-correlated Canadian Dollar has been highly appealing due to rising prices in Canada’s most lucrative commodity, oil, as well as productive trade talks between the US and China.

Pound (GBP) Exchange Rates Lack Drive as UK Inflation Slows Lower Than Forecast

Investors were hesitant to buy the Pound today, as Brexit uncertainties persisted and the latest UK data fell short of expectations.

Wednesday morning saw the publication of Britain’s January Consumer Price Index (CPI) inflation rate report, which was weaker than forecast in both monthly and yearly prints.

Month-on-month inflation contracted at -0.8% rather than the expected -0.7%, and the yearly figure slowed from 2.1% to 1.8% rather than the forecast 1.9%.

As inflation was slower than expected, investors doubted that the Bank of England (BoE) would feel the urgency to hike UK interest rates any time soon. According to Ben Brettell, Senior Economist at Hargreaves Lansdown:

‘The chance of a UK interest rate rise was already galloping over the horizon, as Brexit uncertainty has put policymakers in a straitjacket lately. Today’s inflation figures provide further reason for the Bank of England’s rate-setting committee to sit on their hands.’

Overall though, BoE interest rate hike bets were already low so this data had little impact on the Pound outlook.

Canadian Dollar (CAD) Exchange Rates Benefit from Trade Sentiment

Instead, the Canadian Dollar’s strength has been the primary reason for the Pound to Canadian Dollar (GBP/CAD) exchange rate’s losses this week.

Despite a lack of supportive Canadian data this week so far, the Canadian Dollar remains supported by last week’s strong Canadian employment stats, as well as higher market demand for riskier trade-correlated currencies.

Market risk-sentiment has risen as US-China trade negotiations resume, and officials indicate there is still a possibility that the nations could reach some kind of trade agreement rather than continue to hike up trade tariffs.

US President Donald Trump hinted overnight that he may be willing to delay an expected March deadline for talks, if talks go well and the chances of a deal being met are promising.

On top of US-China trade optimism, the Canadian Dollar is benefitting from higher prices in oil, Canada’s most lucrative commodity.

Production cuts from oil-producing nations in OPEC bolstered hopes that oversupply could be tackled, leading to stronger demand for the commodity and the oil-correlated Canadian Dollar.

Pound to Canadian Dollar (GBP/CAD) Exchange Rate Investors Await Trade Developments

The Canadian Dollar’s strength this week has been due to hopes that US-China trade developments are progressing, so GBP/CAD could see further losses in the coming days if talks are perceived as going well.

As hopes rise that the US and China can reach a deal and avoid further escalation in tensions, investors will become more willing to take risks and buy riskier currencies like the Canadian Dollar.

Upcoming data may prove influential too. The Canadian Dollar could find even more solid support if Thursday’s Canadian housing or manufacturing figures beat forecasts, with Canadian employment data from ADP coming in on Friday.

The Pound, on the other hand, is likely to be influenced by potential Brexit developments as investors await a Parliament debate on Brexit in the middle of the month.

Any major developments in the direction of the Brexit process are most likely to have a big impact on the Pound outlook.

Friday’s UK retail sales stats could also influence the Pound to Canadian Dollar (GBP/CAD) exchange rate.