Poor UK inflation data for June has caused the GBP CAD exchange rate to slump to 1.6436 today.
UK CPI Slide Dashes Rate Hike Hopes after Last Week’s BoE Confidence
The Pound Canadian Dollar exchange rate was down -0.8% in the region of 1.6436 at the time of writing, following poor UK data.
Core consumer price growth has slowed year-on-year from 2.6% to 2.4% and non-core inflation has weakened from 2.9% to 2.6%.
This has lowered the chances of the Monetary Policy Committee (MPC) voting to hike interest rates in the near-term.
Pound Turbulent as UK Monetary Policy Outlook Takes Unexpected Twist
Markets were awaiting a speech on Tuesday by Bank of England (BoE) Deputy Governor Ben Broadbent – the last longstanding member of the Monetary Policy Committee (MPC) not to have indicated whether he believes interest rates need to remain frozen or can be hiked.
However, Broadbent didn’t mention monetary policy; while disappointing on its own, this also prompted markets to assume that Broadbent remains in favour of frozen rates.
Then, on Wednesday, Broadbent unexpectedly confirmed this with comments in an interview published in the Scottish Press and Journal newspaper.
While the Pound initially tumbled, fellow MPC member Ian McCafferty complicated the interest rate outlook on Thursday after claiming that, not only would he continue to vote for a rate hike, he believed the BoE should consider ending its quantitative easing programme early.
This helped GBP CAD to recover from the depreciation seen after the Bank of Canada (BOC) hiked interest rates on Wednesday.
Bank of Canada Hikes Interest Rates; GBP CAD Loses Three Cents
The Canadian Dollar spent much of last week focussing on the latest interest rate decision from the Bank of Canada (BOC).
Anticipation of a rate hike was high after a shift in tone over the last few weeks, even though policymakers had only just begun sounding particularly upbeat on the economy and policy outlook.
Tuesday saw the ‘Loonie’ weakening in anticipation of the policy decision, ignoring positive data showing that housing starts clocked in at 212,000 in June compared to forecasts of 200,000.
GBP CAD exchange rates slumped on Wednesday after the Bank of Canada announced the expected 0.25% rate hike, taking borrowing costs up to 0.75%.
The Pound lost almost three cents against the Canadian Dollar in the space of the afternoon and by the end of the week still hadn’t clawed them all back.
Markets sold the Canadian Dollar for profit after news of the rate hike pushed CAD GBP up to a 17-week high.
While this helped GBP CAD recover, the Pound still ended the week down by more than a cent on its opening levels.
GBP CAD Exchange Rate Forecast; UK Data to Improve After CPI Blow?
The UK’s monetary policy outlook has already taken a knock from data this week, but could it be the turn of the economic outlook on Thursday?
UK retail sales figures for June will show how consumer activity has held up; economists are expecting a strong rebound, however, so GBP CAD could recover some ground.
Public sector borrowing figures will follow on Friday, with the government predicted to have run a smaller deficit in June than in May.
GBP CAD gains on the back of this could be further accelerated by the afternoon’s Canadian consumer price index figures for June.
Analysts expect a slowdown in price growth, which might put the dampeners on hopes the BOC will continue hiking rates in the near-term.