GBP/CAD Exchange Rate Falls Today as Slowing Inflation Lowers Interest Rate Hike Odds

May 23, 2018 - Written by Ben Hughes

STORY LINK GBP/CAD Exchange Rate Falls Today as Slowing Inflation Lowers Interest Rate Hike Odds

On Tuesday, the Pound to Canadian Dollar exchange rate opened trading around 1.7163 and closed higher in the region of 1.7224.

The main Pound influencer yesterday was a testimony session held between Bank of England (BoE) policymakers and the Treasury Select Committee.

BoE officials gave a mixed assessment of the UK economy; on the positive side, Gertjan Vlieghe suggested that there could be as many as six interest rate hikes over the next three years.

Given how cautious the BoE has been in adjusting interest rates in previous years, this was a highly hawkish forecast, especially when potential constriction from Brexit is factored in.

Mr Vlieghe also gave the welcome suggestion that the BoE’s forward guidance, where policymakers suggest future monetary adjustments, could be clearer in the coming months.

Less supportively, BoE Governor Mark Carney stated that Brexit had caused UK households to be £900 worse off, due to the effects of Brexit on the UK economy.

Some commentators criticised Mr Carney for what they saw as a politicised statement, but others cited this as evidence of why securing a good Brexit deal with the EU is of the highest importance.

Tuesday’s Canadian economic data primarily concerned wholesale sales in March, which were reported to have shifted from -0.8% in February to 1.1%.

This increase was worth CA$62.8bn to the Canadian economy, so the supportive news ended up limiting GBP/CAD exchange rate gains.

UK Inflation Rate Slowdown Causes GBP/CAD Exchange Rate Decline

The Pound (GBP) has fallen by -0.3% against the Canadian Dollar (CAD) today, following the news that UK inflation slowed to its lowest level in a year during April.

The annual inflation rate dipped from 2.5% to 2.4%, hitting a low not seen since March 2017.

This news had a mixed reception – the positive interpretation was that UK consumers will face reduced pricing pressures, thereby boosting real incomes.

On the other hand, however, Pound traders responded negatively because slowing inflation will also reduce pressure on the Bank of England (BoE) to raise interest rates.

Some economists have ruled out a 2018 interest rate hike after the news, but others have been more cautiously optimistic.

Among those still forecasting a late-2018 rate hike has been British Chambers of Commerce Head of Economics Suren Thiru, who said:

‘While we think that interest rates will rise again before the end of the year, we would caution against the sort of sustained tightening in monetary policy recently implied by some Monetary Policy Committee members, as it could dampen business and consumer confidence and further subdue UK economic growth.’

Rising Confidence among Canadian Business Leaders Pushes CAD/GBP Exchange Rate Higher

There hasn’t been much direct Canadian economic data today, but the Canadian Dollar to Pound (CAD/GBP) exchange rate has still risen.

The main positive influence on the CAD has been a survey by KMPG, which shows high levels of optimism among Canadian CEOs.

According to the data, 94% of surveyed business leaders are optimistic about future economic growth, while 66% think that AI will create more jobs than it takes away.

Summing up the findings, KMPG Managing Partner Benjie Thomas said:

‘Despite much debate about the potential trade headwinds facing the country, Canadian CEOs have a positive outlook for their own businesses and our economy as a whole.

‘In fact, business leaders in Canada are feeling an unprecedented level of confidence that has them aggressively ready to take on the challenges and opportunities facing their companies.’

GBP/CAD Exchange Rate Forecast: Will Pound Sterling Recover on Rising UK Retail Sales?

The Pound to Canadian Dollar (GBP/CAD) exchange rate has struggled today, but could recover on Thursday when UK retail sales data is released.

This is predicted to show higher month-on-month sales activity during April, which might raise confidence among Pound traders.

The Pound’s movement is largely dependent on which reading traders pay attention to; despite strong monthly figures being forecast, the annual printings are tipped to slow.

The next data that could influence the Canadian Dollar will be a budget balance reading on Friday.

This is predicted to show a reduction of the government’s surplus during March with a shift from CA$2.83bn to CA$1.5bn.

This would still leave Canada with a budgetary surplus, so such a result might not be enough to trigger an immediate CAD/GBP exchange rate decline.

For context, the Canadian government has had a budget surplus since December 2017; July to October of that year saw the country experience a prolonged period of budget deficits.

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