Improved Stock Market Performance Spells Good News For Risk-Tethered Canadian Dollar, While Sterling Suffers

Published: Tuesday, 22 May 2012 18:00 BST - Written by Ben Hughes

STORY LINK Improved Stock Market Performance Spells Good News For Risk-Tethered Canadian Dollar, While Sterling Suffers

This morning’s UK inflation numbers showed a greater than anticipated drop in the rate of British price rises last month. The annualised CPI data for April showed a marked pullback in inflation from last month’s 3.5% to 3.0% this month, suggesting that the Bank of England may have scope to increase the £325bn which it has already allocated to its asset purchase programme. This is a factor which could weigh heavily on the Pound moving forward.

The IMF threw another spanner into Sterling’s works earlier, when they issued a surprise call for the UK’s policy-makers to consider a cut in interest rates. This illustrates the potential which the IMF foresees for the eurozone’s debt crisis to affect economic activity in neighbouring economies. These publically aired concerns have failed to hold back global stock indices, which are registering gains for the second session on the trot. This, in turn, has put the brakes on the improvement which the US Dollar made in the first half of this month.

Meanwhile, the euro has had another steady day; last week’s heavy losses for the single currency now appear a distant memory. It’s looking increasingly likely that market participants have now almost fully factored-in a Greek euro exit, leaving room for the GBP EUR rate to drop further in the near-term.
Elsewhere, the Canadian Dollar is increasingly behaving like a high-yielding currency, in spite of its low level interest rates. The reason for this is that the Canadian economy is heavily dependent on a thriving global economy in order for strong ongoing levels of demand for its natural resources to be maintained. This means that forward moves for global stocks equates to good news for the CAD.

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