Pound Canadian Dollar (GBP/CAD) Exchange Rate Trapped Near Fortnightly Lows After Retail Sales Disappointment

Lacklustre UK Retail Sales Limit Pound Canadian Dollar (GBP/CAD) Exchange Rate Strength

November’s UK retail sales figures failed to offer the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate any particular cause for confidence this morning.

As sales contracted -0.6% on the month this highlighted an increased sense of caution among UK consumers, likely due to recent political uncertainty.

With a lower level of consumer spending likely to limit the potential for fourth quarter economic growth the mood towards Pound Sterling (GBP) remained generally sour.

Lingering anxiety over the risk of a possible cliff-edge Brexit also kept the GBP/CAD exchange rate trending in the region of its fortnightly low, having reversed the entirety of its post-election surge.

Signs of BoE Dovishness May Extend GBP/CAD Exchange Rate Downtrend

Further volatility looks likely for GBP exchange rates this afternoon thanks to the Bank of England’s (BoE) final policy meeting of 2019.

Although markets anticipate no change in monetary policy at this stage the nature of the BoE’s meeting minutes and accompanying commentary could put pressure on the Pound.

Any signs that the central bank is leaning more towards dovishness heading into 2020 would raise the odds of a future interest rate cut, to the detriment of the GBP/CAD exchange rate.

On the other hand, evidence that the BoE could remain on hold for longer would offer the Pound a fresh rallying opportunity.

Commenting ahead of the announcement, as analysts at TD Securities noted:

‘We look for the BoE to keep its policy stance unchanged with another 7-2 vote. The macro data has deteriorated further, but there’s a firm hope that as political uncertainty lifts, UK growth will pick up. The recent US-China deal also reduces the downside tail. However, we still see about a 1/3 chance that Vlieghe joins Haldane and Haskel in voting for a rate cut, making it a narrower 6-3 decision.’

CAD Exchange Rates Struggle to Hold onto Inflation Boost

The solid uptick in Wednesday’s Canadian consumer price index data was not enough to keep the Canadian Dollar (CAD) on a positive footing for long, however.

While inflation of 2.2% sits comfortably within the Bank of Canada’s (BOC) target range the monthly consumer price index proved less encouraging in nature.

Support for CAD exchange rates could pick back up this afternoon, though, with markets expecting to see another solid month of growth in wholesale trade sales.

Fresh evidence of resilience within the Canadian economy may see the GBP/CAD exchange rate extending its recent downtrend further as the odds of the BOC maintaining a neutral policy bias increase.

Solid Retail Sales Growth to Shore up Canadian Dollar Demand

Demand for the Canadian Dollar could pick up further ahead of the weekend on the back of October’s Canadian retail sales report.

As forecasts point towards solid growth of 0.5% on the month evidence of stronger consumer spending may encourage greater confidence in the economic outlook.

However, any slowdown in the latest new housing price index could weigh heavily on CAD exchange rates.

With a lacklustre housing market already putting pressure on the BOC a weaker price index may prompt a fresh round of Canadian Dollar selling, helping to shore up the GBP/CAD exchange rate.

Louisa Heath

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