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Weekly GBP/CAD Exchange Rate Forecast: Are Pound Losses ahead on UK Inflation Acceleration?

April 13, 2018 - Written by Ben Hughes

On Thursday, the Pound to Canadian Dollar exchange rate opened in the region of 1.8002 on Monday but later closed down lower around 1.7950 on Friday.

This slight GBP/CAD decline could worsen in the week ahead, if UK economic data shows tougher conditions for consumers.

Last Week’s GBP/CAD Losses Triggered by Slowing UK Productivity and Gloomy GDP Forecast

The Pound to Canadian Dollar exchange rate noticeably fell over the previous week, with only a small recovery taking place on Friday.

UK economic data was negative for the most part, showing levels of industrial and manufacturing activity slow during the month in February. Annual construction output in February also fell compared to the same month in 2017.

Another damaging UK data release was the National Institute for Economic and Social Research (NIESR) GDP estimate for Q1 2018, which was penciled in at 0.2%.

The situation was worsened when the NIESR’s Amit Kara suggested that because of snowstorms during the month, the actual reading might be even lower.

CAD/GBP Exchange Rate Recap: Canadian Dollar Advance Seen after Crude Oil Price Boom

While domestic data failed to excite Canadian Dollar traders last week, the CAD/GBP exchange rate still firmed thanks to sharp rises in the price of crude oil.

In the space of a week, the cost of crude oil rose from just above $62 per barrel on Monday to close above $67 by Friday.

This advance followed the news that US President Donald Trump could be considering a military intervention in Syria, in the wake of another chemical weapons incident.

Given the quantity of crude oil extracted and exported from the Middle East, this risk of war raised fears that production would be disrupted and boosted the price of the resource.

The week ended with a reduced risk of war following moderate tweets from President Trump, but some analysts suggested that this was just the planning stage before genuine military action.

Weekly GBP/CAD Forecast: Will Pound to Canadian Dollar Exchange Rate Fall as UK Wage Growth Slows?

This week’s Pound to Canadian Dollar exchange rate has largely been favourable, but this positive trading may not last in the week ahead.

The main obstacle to continued GBP/CAD exchange rate gains is a cluster of high-impact UK wage, unemployment and inflation rate data.

First up will be February’s unemployment and average earnings stats, due for release on 17th April.

There is currently uncertainty about how the earnings data will print – if it shows a slowdown then the Pound could fall in value.

An unexpected rise in the jobless rate could further devalue the Pound, as it would be a move away from the current historic low of 4.3%.

The wage growth reading will be compared with inflation rate stats out on 18th April; if the pace of earnings growth slows and inflation accelerates then there is another chance of a GBP/CAD exchange rate slump.

If the rate of inflation overtakes the pace of wage growth then UK consumers will face wage squeeze conditions, which may lead to reduced spending and slower GDP growth in the future.

One bright spot next week could be UK retail sales data out on 19th April, which is predicted to show rising year-on-year sales growth.

There will also be a large number of high-impact Canadian data releases out over the coming week, covering central bank policy, employment, retail sales and inflation rates.

The Bank of Canada (BOC) isn’t expected to adjust interest rates on 18th April, but BOC Governor Stephen Poloz could still spark a Canadian Dollar advance if he hints at raising interest rates in the future.

Another notable data release, 19th April’s ADP employment change figure, could generate support for the Canadian Dollar if it shows a sharp rise in the number of employed persons.

Rounding off next week’s Canadian economic data will be retail sales and inflation rate figures released on 20th April.

The Canadian Dollar might appreciate when the stats come out, as while inflation rates are tipped to slow, the basic retail sales readings are forecast to show month-on-month and year-on-year growth.
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