Confidence in the Pound slumped sharply ahead of the weekend, with investors disappointed to find that June’s public sector net borrowing figure was higher than anticipated.
This larger build-up in new government debt does not bode well for the health of the UK budget, with the deficit looking set to widen further.
In the wake of Tuesday’s underwhelming inflation data this weaker showing saw the mood towards GBP sour, particularly as Brexit-based uncertainty continues to exert downside pressure on the Pound.
The GBP CAD exchange rate was able to regain some of its lost ground on Friday afternoon, however, thanks to a weaker-than-expected Canadian consumer price index report.
Inflationary pressure slowed from 1.3% to 1.0% on the year in June, undermining the odds of the Bank of Canada (BOC) pursuing further interest rate hikes in the near future.
Policymakers are likely to leave monetary policy on hold if inflation fails to show progress towards the central bank’s target range, limiting the upside potential of the Canadian Dollar.
Even though May’s retail sales figures showed a more limited decline than forecast this was not enough to shore up the weakened ‘Loonie’.
Positive Oil Developments Support Canadian Dollar
An unexpected uptick in Canadian wholesale sales helped to bolster the appeal of the Canadian Dollar at the start of the week.
The 0.9% increase in sales on the month indicated the underlying robustness of the domestic economy, encouraging investors to favour CAD once again.
Developments in the oil market also offered support to the commodity-correlated currency, with prices rising in response to news that Saudi Arabia is cutting its exports to the US.
Even so, as the global oversupply glut looks set to persist for some time to come and the OPEC-led production limiting deal seems to be fraying this boost is unlikely to last for long.
Demand for Sterling bounced back, meanwhile, as the CBI business optimism index showed a surprise jump in July. This accompanied a strong surge in the corresponding growth data, with UK factories posting their fastest quarter of growth since 1995.
Markets were naturally encouraged by these positive economic signs, offering the GBP CAD exchange rate support even as the general sense of risk appetite remained elevated.
UK and Canadian GDP Set to Provoke GBP CAD Volatility
Fresh volatility is in store for the Pound once the first estimate of UK second quarter gross domestic product is released.
After a disappointing first quarter investors will be hoping to see some signs of a rebound here, creating the potential for a stronger GBP CAD exchange rate rally.
Even so, as Brexit negotiations still have some distance to run the outlook of the UK economy remains rather uncertain. Anything short of a solid uptick in economic activity is likely to leave Sterling struggling to gain particular traction against its rivals this week.
The Canadian Dollar could find greater support on Friday, however, if May’s Canadian gross domestic product proves positive. Growth is thought to have strengthened bullishly on the year, even though markets expect to see no change in the monthly measure.
This could bolster optimism in the health of the domestic economy, especially if the chances of more aggressive Federal Reserve policy tightening are seen to fade.