The Pound to Canadian Dollar exchange rate edged lower yesterday due to the persistent strength of the Canadian Dollar since last week’s Bank of Canada (BOC) rate hike.
However, when Britain’s August inflation results came in this morning, GBP/CAD quickly surged by around a cent.
Pound (GBP) Bolstered as UK Inflation Impresses
Sterling rallied significantly on Tuesday as Britain’s August Consumer Price Index (CPI) results came in higher than expected.
Analysts forecast that UK inflation would improve from 2.6% to 2.8% in August, so the result of 2.9% was unexpectedly bullish. The monthly figure improved from -0.1% to 0.6%, beating 0.5% expectations.
Due to the stronger-than-expected inflation data, speculation that the Bank of England (BoE) could be pressured into tightening UK monetary policy flared.
Britain’s core inflation rate, which leaves out volatile factors like petrol and food, jumped to a six-year-high of 2.7%, beating 2.5% expectations.
CAD Exchange Rates Slip Back from BOC-Induced Highs
The Canadian Dollar saw a surge in demand last Wednesday as investors reacted to a surprising interest rate hike from the Bank of Canada (BOC).
September’s BOC rate hike blindsided markets, with investors rushing to buy the ‘Loonie’ following the meeting.
Solid Canadian data has also supported the ‘Loonie’ in recent sessions. August’s Canadian housing starts results edged higher, from 222k to 223.2k.
However, the Canadian Dollar was sold from its recent highs on Tuesday morning. Fluctuating prices of oil, Canada’s most lucrative export, have limited ‘Loonie’ gains too.
GBP/CAD Forecast: Bank of England in Focus
Now that Britain’s August inflation data has come in higher-than-expected, anticipation surrounding Thursday’s Bank of England (BoE) policy decision has grown.
Analysts are speculating that stronger inflation may be enough to pressure the BoE into taking a more hawkish tone on monetary policy.
However, other analysts remain convinced that the central bank will remain on the side lines for some time to come.
While inflation is strong, other UK economic factors remain full of uncertainty, which could give the bank plenty of reason to keep monetary policy accommodative.
Wednesday’s UK employment change report and jobless claims figures could influence Sterling slightly, but investors are more likely to wait until the BoE decision before making the next big moves on GBP/CAD this week.
As for the Canadian Dollar, the currency could see increased demand if oil prices strengthen or if Thursday’s Canadian housing price figures impress.