Pound Canadian Dollar (GBP/CAD) Exchange Rate Slips as Canadian Inflation Turns Negative

Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Falls despite Canadian Inflation Falls to Decade Low

UPDATE: The Pound Sterling Canadian Dollar (GBP/CAD) exchange rate slumped by around -0.3% lower this afternoon. This left the pairing trading at around CA$1.7040.

The Canadian Dollar was left under pressure this afternoon following the release of inflation data.

The country’s annual inflation rate slumped by -0.2% in April, the first time inflation has plunged into negative territory since 2009.

This weighed on the ‘Loonie’ and limited gains.

In a statement, Statistics Canada noted:

‘Compared with April 2019, consumers paid less for transportation (-4.4%), clothing and footwear (-4.1%), and recreation, education and reading (-0.7%). In contrast, the growth in food prices (+3.4%) accelerated in April 2020 and recorded the largest year-over-year increase of any major component.’

Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Slides on Steady Oil Prices

The Pound Sterling Canadian Dollar (GBP/CAD) exchange rate edged around -0.2% lower this morning. This left the pairing trading at around CA$1.7048.

The Canadian Dollar edged higher as oil prices continued to hold steady on signs of improving demand.

Prices were also supported by a drawdown in US crude inventories. Although worries about the economic fallout from the coronavirus crisis capped gains.

According to Samsung Securities’ commodity analyst, Kim Kwang-rae:

‘Oil markets have worried about high crude inventories but yesterday the WTI June contract expired and rolled over to July smoothly as concerns over crude stocks ease and demand has improved in the short-term.’

Although, concerns about the economic fallout of the pandemic lingered, especially about the world’s largest economy. The United States is the world’s largest oil consumer, and these concerns weighed on the oil-sensitive ‘Loonie’, preventing significant gains.

Added to this, risk appetite was left dampened after medical news website, STAT stated early data from a coronavirus vaccine trial was insufficient.

Sterling (GBP) Slides as Inflation Eases to Four-Year Low

The Pound suffered losses against the Canadian Dollar on Wednesday morning after the Office for National Statistics (ONS) showed British inflation eased to its lowest level since 2016.

April’s data reflected a fall in energy prices and the nationwide lockdown which stopped economic activity in the UK.

In a statement, ONS Deputy National Statistician Jonathan Athow stated:

‘Falling petrol and diesel prices, combined with changes to the domestic energy price cap were the main reasons for lower inflation in April.’

Consumer prices were only able to rise by an annualised rate of 0.8% and monthly prices fell by -0.2%.

This fall was the steepest since 2008 and sent inflation to less than half of the Bank of England’s (BoE) target range.

The possibility of consistently low inflation has added further speculation the BoE will need to take further action. This is likely to intensify the debate between policymakers over taking interest rates into negative territory for the first time.

Pound Canadian Dollar Outlook: Canadian Inflation in Focus

Looking ahead the Canadian Dollar (CAD) could suffer some losses against the Pound (GBP) following the release of inflation data.

If Canadian inflation plummets further than expected in April, it will dampen sentiment in the ‘Loonie’.

However, any gains from Sterling could be short-lived following the release of flash British PMI surveys on Thursday morning.

If both activity in the services and manufacturing sectors continues to decline at a rapid pace in May, the Pound Canadian Dollar (GBP/CAD) exchange rate will edge lower.

Millie Empson

Contact Millie Empson