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GBP to CAD Exchange Rate Climbs on UK Inflation as US-China Reprieve Wears Off

August 14, 2019 - Written by Toni Johnson

Despite no-deal Brexit fears still weighing heavily on the Pound outlook, the British Pound to Canadian Dollar (GBP/CAD) exchange rate is climbing again today. The Pound’s appeal has been bolstered by an unexpected rise in UK inflation and Bank of England speculation, making it easier for the British currency to gain against a trade-war pressured Canadian Dollar.

While the Canadian Dollar is weakening though, GBP/CAD has been unable to sustain a solid recovery of last week’s losses. GBP/CAD opened last week at the level of 1.6056 and ended the week at 1.5896 despite US-China trade tensions. On Monday, GBP/CAD touched on a new post-2017 worst level of 1.5885 before rebounding, and at the time of writing the pair was trending closer to the level of 1.6021.

The Canadian Dollar is a trade-correlated currency, so it has been unappealing amid the recent US-China trade tensions, and last night’s perceived trade war reprieve was not significant enough to last.

GBP Exchange Rates Climb as UK Inflation Data Leads to Bank of England (BoE) Speculation

Following days of mixed performance, as investors digest worsening no-deal Brexit and UK recession fears, the Pound finally found some more solid support today.

Britain’s July Consumer Price Index (CPI) inflation rate was published this morning, and beast expectations in most key prints.

The monthly inflation rate came in at 0.0% rather than the expected -0.1%, and the yearly inflation rate rose to 2.1% rather than slowing to 1.9% as forecast.

While the data originally had little impact on the Pound outlook, analysts noted that the inflation rate had unexpectedly risen above the Bank of England’s (BoE) target inflation rate.

The data doused market speculation that the Bank of England could be pressured into cutting UK interest rates in the foreseeable future, with some even suggesting that an interest rate hike has become more plausible.

Mike Jakeman, Economist at PwC, believed the data would not change the Bank of England’s stance though:

‘The latest data will not change the position of the Bank of England, which is committed to keeping interest rates on hold at least until more clarity is provided on Brexit,’

Overall, the Pound’s potential for gains was limited by persisting no-deal Brexit fears.

CAD Exchange Rates Turning More Bearish

Following months of strong performance amid a weaker US Dollar (USD) and signs of resilience in Canadian data and monetary policy, the Canadian Dollar could be in for its own period of weakness.

Much of the resilient optimism in Canadian Dollar movement has faded in recent weeks, as Canadian data has been more mixed and US-China trade tensions have worsened.

The Canadian Dollar is a trade-correlated currency, so it has been unappealing amid the recently escalating trade war between the US and China, as well as the threat of a possible currency war.

Demand for the Canadian Dollar briefly recovered overnight, as the US announced that it would delay tariffs on certain items included in its latest tariff plans.

Tariffs on potential holiday gifts, such as toys and phones, would be delayed until December in order to prevent the tariffs from hurting US retail activity.

However, the Canadian Dollar’s gains were limited. As the delay only included some exceptions and US-China trade tensions were still worsening, and as China’s latest retail data fell short of expectations, investors continued to find trade-correlated currencies unappealing.

GBP/CAD Exchange Rate Forecast: UK Retail and Canadian Job Stats Could Shift Currency Movement

While UK data published in recent sessions have been fairly influential, tomorrow’s UK retail sales report could be even more significant if it surprises investors.

Speculation that Britain could fall into recession has risen due to a surprise growth contraction in Q2 2019, as well as today’s news that Britain’s yield curve had inverted.

If tomorrow’s UK retail sales results come in even lower than the already fairly bearish forecasts predict, it will worsen fears that Britain’s poor economic performance will continue into Q3.

This would worsen UK recession fears and lead to fresh Pound losses, and no-deal Brexit fears still persist as well.

Canadian Dollar demand, on the other hand, is still being weighed by US-China trade jitters and speculation that Canada’s economic resilience is fading.

As a result, if tomorrow’s Canadian employment data from ADP beats expectations, the Pound to Canadian Dollar exchange rate is more likely to shed some of this week’s gains.
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