GBP CAD Exchange Rate Trends Lower after Widened Trade Deficit and Muted BoE Meeting

May 12, 2017 - Written by Toni Johnson

STORY LINK GBP CAD Exchange Rate Trends Lower after Widened Trade Deficit and Muted BoE Meeting

Confidence in the Pound was sharply dented by a raft of disappointing UK data, leaving the Pound Canadian Dollar exchange rate on a downtrend.

Investors were not impressed to find that the UK visible trade deficit had widened further than forecast in March, clocking in at -13.44 billion rather than -11.6 billion.

This highlighted the continued vulnerability of the domestic economy, particularly as the NIESR gross domestic product estimate for the three months to April indicated a further slowdown in growth.

With the post-referendum weakening of the Pound failing to have any significant positive impact on the economy the mood towards Sterling soured.

Sentiment was also hampered by the latest Bank of England (BoE) policy meeting, where only seasoned hawk Kristin Forbes voted in favour of an immediate interest rate hike.

As markets had hoped to see another policymaker join the hawkish dissention the appeal of the Pound remained limited, despite the somewhat upbeat tone of the quarterly Inflation Report.

Danske Bank Chief Analyst Pernille Henneberg noted:

‘While we think it is unlikely that the BoE will tighten monetary policy in a time of elevated political uncertainty, we think we need to see substantially slower growth and/or higher unemployment before easing becomes likely again.’

Pressure also mounted on the Canadian Dollar ahead of the weekend, with March’s new housing price index pointing towards a slowing housing market.

This undermined confidence in the strength of the wider economy, especially as the outlook of the oil market remains muted.

While a larger-than-expected drawdown in US crude inventories prompted Brent crude to break back above the US$50 per barrel mark this rally struggled to sustain itself for long.

Although there are signs that OPEC could extend its production limiting agreement past its original June endpoint worries over the global oversupply glut are likely to persist for some time yet.

Even so, these continued market jitters were not enough to boost the GBP CAD exchange rate ahead of the weekend.

Further volatility is likely in store for the Pound on the back of Tuesday’s UK consumer price index data, which could point towards a further uptick in inflationary pressure.

With the BoE looking set to remain on hold for the foreseeable future rising inflation is likely to increasingly undermine consumer spending, cutting deeper in stagnant wage growth.

However, investors could be encouraged to buy back into the Pound if CPI surprises significantly to the upside, likely to bet that a sharper increase in inflation could force the BoE’s hand sooner rather than later.

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