Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Softens as UK Inflation Eases
As the headline UK consumer price index slipped to a 21-month low of 2.3% in November the mood towards Pound Sterling (GBP) soured.
Although this slowdown in inflationary pressure was widely forecast this still left the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate trending lower.
Even with inflation picking up slightly on the month the case for the Bank of England (BoE) to raise interest rates still deteriorated in the wake of the data.
Worries over the prospect of a no-deal Brexit also dragged on GBP exchange rates on Wednesday as both the UK and EU stepped up their contingency planning.
With a significant air of uncertainty still hanging over the domestic outlook investors saw little reason to favour the Pound.
Slump in Inflation Weighs on Canadian Dollar (CAD) Exchange Rates
Confidence in the Canadian Dollar (CAD) also diminished, however, as November’s Canadian CPI data fell short of forecast.
In a disappointing shift the inflation rate slumped from 2.4% to 1.7% on the year, dipping below the Bank of Canada’s (BOC) target rate of 2%.
This naturally limited the odds of BOC policymakers voting to tighten monetary policy further in the months ahead, to the detriment of CAD exchange rates.
Even so, the Canadian Dollar could find a rallying point if October’s retail sales or gross domestic product data show an improvement.
Evidence of resilient economic growth may offer support to CAD exchange rates on Friday, in spite of the disappointing inflation data.
As long as global oil markets remain in a bearish state of mind, though, the upside potential of the commodity-correlated Canadian Dollar could prove limited.
Pound Sterling (GBP) Exchange Rate Weakness Forecast Ahead of BoE Meeting
As anticipation mounts for the BoE December policy announcement the appeal of the Pound looks set to remain muted.
Investors do not expect to see any signs of particular hawkishness among policymakers at this juncture, especially in the wake of November’s weaker inflation data.
With the case for fresh monetary tightening fading the GBP/CAD exchange rate may struggle to find any support in the wake of the meeting.
As James Smith, Developed Markets Economist at ING, commented:
‘With economic growth stalling, we suspect the Bank will be forced to sit on its hands through much of the first half of next year, and potentially even longer should the article 50 period need to be extended to allow more time to reach a Brexit solution.’
However, any signs that policymakers are leaning towards greater optimism in the economic outlook this could offer the Pound a boost against its rivals.
Further volatility also looks likely on the back of Friday’s UK public sector net borrowing and finalised third quarter gross domestic product data.
Any fresh signs of vulnerability within the UK economy could weigh heavily on the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate heading into the weekend.