Weaker-Than-Expected UK Inflation Drags Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Lower
An unexpectedly sharp slowdown in September’s UK consumer price index left Pound Sterling (GBP) on a downtrend, undoing much of the gains seen in the wake of Tuesday’s stronger wage data.
While the headline annual inflation rate easing from 2.7% to 2.4% improves the prospect for further wage growth this was not enough to encourage investors.
Although the data bodes well for domestic households, and future consumer spending, the dip in inflation gives the Bank of England (BoE) greater incentive to leave interest rates on hold for longer.
With an interest rate hike looking an increasingly distant prospect the upside potential of GBP exchange rates eased.
Worries over Brexit continued to weigh on the Pound, meanwhile, as hopes faded ahead of Theresa May’s crunch meeting with EU leaders.
As no breakthrough is expected on the subject of the Irish border the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate looks vulnerable to further downside pressure in the near term.
Risk Aversion Limits Canadian Dollar (CAD) Exchange Rate Gains
Support for the Canadian Dollar (CAD), however, proved limited on Wednesday morning thanks to a persistent sense of market risk aversion.
CAD exchange rates failed to take any particular encouragement from the latest API oil inventories report, even though the figure showed a surprise drawdown of 2.13 million barrels.
The outlook of the oil market remains muted in the face of global trade tensions, especially given the Trump administration’s preference for lower oil prices.
Confidence in the Canadian Dollar also proved limited as markets braced for August’s manufacturing sales data, with forecasts pointing towards a -0.8% contraction on the month.
Signs of weakness within the Canadian economy could weigh heavily on CAD exchange rates, with markets still speculating over the likelihood of the Bank of Canada (BOC) raising interest rates.
Unless sales better forecast to show an improvement on the month the mood towards the Canadian Dollar is likely to sour further.
GBP/CAD Exchange Rate Volatility Forecast on UK Retail Sales Data
Although Brexit developments are expected to dominate the outlook of the GBP/CAD exchange rate some support could come on the back of September’s retail sales data.
An acceleration in retail sales would encourage greater confidence in the outlook of the UK economy, offering a boost to the Pound.
Higher levels of consumer spending would point towards a more robust third quarter gross domestic product.
However, investors also anticipate a contraction in sales on the month as the impact of the summer heatwave fades.
If sales excluding auto fuel fall -0.4% on the month this could put additional pressure on GBP exchange rates.
As long as the odds of a no-deal Brexit continue to rise, though, the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate looks set to slide lower.