Disappointing forecasts from the Bank of England weakened the Pound Canadian Dollar exchange rate last week.
Pound Quickly Loses Midweek Gains after Underwhelming ‘Super Thursday’ Releases
Last Tuesday saw the Canadian Dollar performing bullishly after the latest GDP figures bettered estimates. Expected to weaken from 1.5% to 1.4%, November GDP instead rose to 1.6% on the year. Month-on-month growth clocked in at 0.4% – ten basis points above forecast – after contracting -0.3% in October.
However, ‘Loonie’ gains were undermined on Wednesday by dovish comments from Bank of Canada (BOC) Governor Stephen Poloz. The central bank chief warned that investors should not expect Canadian monetary policy to mimic that of the US, where three interest rate hikes are on the cards this year.
This caused the Canadian Dollar to slump, enabling GBP CAD exchange rates to soar on the back of a leaked EU memo which showed officials considered it vital to give UK financial services access to the single market.
Sterling quickly lost its gains heading into the weekend, however, after another slew of Bank of England (BoE) developments saw ‘Super Thursday’ fail to live up to its moniker. The Pound reacted badly to the latest meeting minutes and inflation report from the BoE, despite a significant upward revision in growth forecasts.
However, the inflation forecast for the current quarter was revised up just 0.2% to 2%, while 2018’s forecast was marginally lower than previously expected at 2.7%. This suggested that the BoE still didn’t see the current surging pace of consumer price growth as a concern, dampening hopes of a rate hike in the short or medium-term.
GBP CAD Static; UK Data Disappoints, Traders Waiting for Canadian Releases
Headwinds for both currencies are keeping the GBP CAD exchange rate stuck around opening levels today.
The Pound is muted by the day’s poor data releases. The BRC like-for-like sales report for January showed a surprise year-on-year decline of -0.6%. Many analysts had attributed December’s poor retail sales growth to the huge Black Friday discounts seen in November, but if the BRC data suggests retail performance has remained weak at the beginning of the year, it may be harder to dismiss suggestions that we are indeed seeing the projected slowdown in consumer spending.
Additionally, house prices contracted -0.9% on the month in January, while the three-month period ending in January saw price growth of 5.7%, against predictions of a more minor slowdown from 6.5% to 6%.
Meanwhile, Labour’s attempts to amend the Article 50 bill in Parliament have been defeated, raising the prospect that Theresa May will have a blank cheque with regards to her Brexit negotiations.
But the approach of Canadian data this afternoon, as well as weakness in the crude oil markets, is keeping appetite for the Canadian Dollar weak.
Volatility Predicted for GBP CAD during Friday Data Storm
With the exception of Friday, the rest of the week is largely quiet in terms of data. A speech from BoE Deputy Governor Jon Cunliffe is the only development scheduled for the UK tomorrow, with Canada’s data calendar consisting entirely of the January new housing starts figure.
Thursday sees the UK RICS house price balance and a speech from BoE Governor Mark Carney, with more housing data from Canada.
Friday will be a different story. Strong volatility can be expected as UK trade, industrial, manufacturing and construction data, as well as the NIESR GDP estimate for January, clashes with headline Canadian unemployment and employment change data.