Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Fails to Benefit From Falling UK Unemployment
A surprise fall in the UK unemployment rate was not enough to boost the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate on Tuesday morning.
While the unemployment rate dipped from 4.2% to 4.0% in June this did little to bolster the appeal of Pound Sterling (GBP).
Investors were more concerned by the disappointing state of the latest UK wage growth data, which saw average weekly earnings unexpectedly ease from 2.5% to 2.4% in the three months to June.
This weaker showing highlights the persistently soft state of UK wage growth, something which is likely to limit the hawkishness of the Bank of England (BoE).
With UK inflation expected to remain at elevated levels workers are struggling to see any increase in wages, limiting the potential for consumer spending and constraining domestic sentiment further.
Canadian Dollar (CAD) Exchange Rates Vulnerable to Market Tensions
Although the Turkish financial crisis has offered support to the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate in recent days this failed to stave off a return to a downtrend.
A modest recovery in oil prices helped to fuel a recovery in the Canadian Dollar (CAD), even as the situation in Turkey continued to show signs of deterioration.
Mounting trade tensions between the US and Canada limited the upside potential of CAD exchange rates, though, as the Trump administration maintained a more belligerent approach.
Until NAFTA renegotiations conclude successfully the Canadian Dollar is likely to remain vulnerable to political and trade developments.
Pound Canadian Dollar (GBP/CAD) Exchange Rate Recovery Forecast on Rising UK Inflation
The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate could find a rallying point on Wednesday, however, with the release of the latest UK consumer price index.
Forecasts point towards inflation edging higher on the year once again, with the headline CPI expected to pick up from 2.4% to 2.5%.
While this would exacerbate concerns over the domestic wage outlook, with earnings still failing to push above inflation, a stronger showing could still boost Pound Sterling demand.
Higher levels of inflation may encourage the BoE to consider raising interest rates further in spite of lingering Brexit-based uncertainty and weaker economic data.
As long as inflationary pressure continues to run above the BoE’s 2% target markets are likely to bet on the prospect of another interest rate hike, to the benefit of GBP exchange rates.
Steady Canadian Inflation to Limit GBP/CAD Exchange Rate Upside
Friday’s Canadian consumer price index data could provoke some additional volatility for the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate.
While the headline inflation rate is expected to hold steady at 2.5% the core measure is forecast to show a modest uptick on the year.
This could offer the Bank of Canada (BOC) some encouragement, indicating that inflationary pressure within the Canadian economy is still mounting.
However, any weakening in the CPI would leave the Canadian Dollar vulnerable to a fresh bout of selling pressure.
Unless market risk appetite recovers in the days ahead this is also likely to limit the potential losses of the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate.