The Pound recorded a 1.2% advance against the Canadian Dollar today thanks to better-than-expected results for UK GDP figures.
In Q3, quarter-on-quarter GDP growth rose to 0.4%, up from 0.3%.
While hardly showing a dramatic economic turnaround, this was still better than the predicted reprint of 0.3%.
Geraint Johnes of Lancaster University Management School was sceptical about how supportive the data was, saying;
‘The headline growth of 0.4% over the third quarter represents a slight increase over the second quarter figure.
Over the year, growth is just 1.5%, and the quarterly figure suggests little momentum going forward’.
Pound (GBP) Exchange Rates Rally on Higher Hopes of November Interest Rate Hike
Economists have been quick to respond to the news, already calculating the chances of an interest rate hike on November 2nd.
Some believe there is a firm chance of a hike from 0.25% to 0.50%.
Among these economists was Ruth Gregory, of Capital Economics;
‘[These figures] have probably sealed the deal on an interest rate hike next week’.
On the other hand, however, some believe the economy simply isn’t strong enough to support higher interest rates.
One economist in this camp was Larry Elliot, Guardian Economics Editor. Looking at the Monetary Policy Committee (MPC), Elliot said;
‘In its 20-year history, the MPC has not previously dared raise rates when the economy is so sluggish.
The vote might be closer than the City expects. There are likely to be dissenters on the committee and their arguments will carry some weight’.
Canadian Dollar (CAD) Left Weak after Bank of Canada Interest Rate Freeze
The Canadian Dollar has been let down by the Bank of Canada (BOC) today, with CAD exchange rates struggling after the central bank left interest rates at 1%.
This was the expected outcome, but later remarks from the bank saw traders lower their expectations of future interest rate hikes.
In a statement released by the bank, policymakers said that a lower Canadian unemployment rate;
‘Likely overstates the degree of improvement in the labour market. [This isn’t yet] a source of inflationary pressures and opportunities for further expansion of employment remain’.
In a situation similar to the UK, policymakers also expressed concern about the effects of raising interest rates on households.
For traders, this was just another sign that the next Canadian interest rate hike could be further away instead of closer.
Pound (GBP) Exchange Rates could Tumble if CBI Trading Data Shows Sharp Decline
The Pound’s luck could run out on Thursday, if the Confederation of British Industry (CBI) brings bad news as expected.
The CBI will be releasing its distributive trades figure for October, which measures reported sales in a wide range of areas.
Unfortunately for the UK, estimates are for a reduction in the previous score of 42 points down to 15.
In the wake of today’s BOC news, the Canadian Dollar might also be affected by Friday’s budget balance data.
The deficit is forecast to expand from C$-0.2bn to C$-2.8bn, which might trigger a Canadian Dollar decline.