Pound Canadian Dollar Exchange Rate Stumbles on Rising UK Unemployment

As the UK unemployment rate picked up in November, reflecting a deterioration in the health of the labour market, the Pound to Canadian Dollar exchange rate struggled to hold onto its positive footing.

Last Week: Bank of Canada’s Optimism Fails to Shore up Canadian Dollar for Long

Ahead of the weekend the GBP/CAD exchange rate came under pressure as a result of the Bank of Canada’s (BOC) January policy announcement.

Although policymakers did not opt to make any changes to monetary policy at this stage investors still took encouragement from their relatively positive tone on the economic outlook.

However, another surprise contraction in the latest Canadian ADP employment change figure soon saw the Canadian Dollar falling out of favour with investors once again.

With market risk appetite somewhat muted the commodity-correlated Canadian Dollar was unable to capitalise on the underwhelming nature of Friday’s UK services PMI reading.

Three Things to Watch out for This Week

1. UK Car Production

After the decline seen in November forecasts point towards another sharp contraction in UK car production for December, offering fresh evidence of the weakening manufacturing sector.

As long as production proves negative lingering worries over the economic outlook look set to drag the GBP/CAD exchange rate lower.

2. Canada Average Weekly Earnings

In the wake of last week’s underwhelming employment data the Canadian Dollar looks vulnerable to any weakness in November’s earnings figures.

If wage growth shows signs of slowing in the fourth quarter this could encourage CAD exchange rates to shed fresh ground, with lower earnings likely to weigh on the wider economy.

3. Canada Gross Domestic Product

The Canadian Dollar appears set for a greater bout of volatility on the back of Friday’s gross domestic product report.

Unless the economy can hold onto a steady rate of growth on the month in November the mood towards the Canadian Dollar is likely to sour, offering the GBP/CAD exchange rate a boost.

GBP/CAD Outlook

Fresh signs of weakness within the Canadian labour market and wider economy could encourage the Pound Canadian Dollar exchange rate to extend its recent gains further.

Louisa Heath

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