Surge in Canadian Unemployment Limits Pound Canadian Dollar Exchange Rate Downside

Pound Canadian Dollar Exchange Rate Sees Limited Benefit from Canadian Unemployment Jump

A shock surge in the Canadian unemployment rate helped to limit downside pressure on the Pound to Canadian Dollar (GBP/CAD) exchange rate.

While forecasts had pointed towards the January unemployment rate picking up from 8.8% to 8.9% investors were caught off guard as the rate instead surged to 9.4%.

This sharp increase does not bode well for the health of the Canadian labour market, especially when coupled with a declining participation rate.

With signs pointing towards fresh economic weakness, in spite of December’s narrowed trade deficit, there appeared little reason to favour the Canadian Dollar (CAD) ahead of the weekend.

Even though this unemployment increase was largely driven by a decline in part-time employment this failed to offer CAD exchange rates any degree of reassurance.

Dip in UK House Price Index Weighs on Pound Demand

On the other hand, demand for Pound Sterling (GBP) proved muted thanks to an unexpected decline in the Halifax house price index.

As prices dropped -0.3% on the month in January this suggests that the resilience of the UK housing market has started to falter.

Given that heightened levels of housing market activity have previously helped to cushion the impact of pandemic disruption this latest sign of weakness weighed heavily on GBP exchange rates.

The fading impact of the Bank of England’s (BoE) February policy announcement also left the Pound vulnerable to selling pressure, meanwhile.

Fresh Bank of Canada Commentary May Stoke Canadian Dollar Volatility

Comments from Bank of Canada (BOC) governor Philip Lane could provoke some fresh volatility for the Canadian Dollar next week.

If Lane shows any signs of increased anxiety over the outlook of the Canadian economy this could drag on CAD exchange rates.

On the other hand, any signs that the central bank is less likely to consider further monetary policy loosening in the months ahead may give the Canadian Dollar a boost against its rivals.

Developments in the oil market could also stir some movement for CAD exchange rates, given the currency’s relative correlation with the commodity’s fortunes.

Pound Exchange Rates Vulnerable Ahead of UK Gross Domestic Product Report

In the absence of fresh UK data in the early part of the week the Pound to Canadian Dollar could struggle to return to a positive footing.

The mood towards the Pound may well sour as anticipation builds for the release of the fourth quarter UK gross domestic product report on Thursday, though.

As long as investors see reason to bet that the economy could experience a fresh contraction here GBP exchange rates look set to remain biased to the downside.

However, if the economy can demonstrate greater resilience and hold onto a positive quarterly growth rate this may help the Pound to Canadian Dollar exchange rate recover some of its lost ground.

Louisa Heath

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