Pound Canadian Dollar Exchange Rate Wavers as UK Inflation Hits Fresh 40-Year High

Pound Canadian Dollar (GBP/CAD) Exchange Rate is fluctuating amid Hotter-Than-Expected CPI

The Pound Canadian Dollar (GBP/CAD) exchange rate zigzags as UK inflation prints higher than expected and hits a fresh 40-year high of 9.4%.

At time of writing, the GBP/CAD exchange rate is around CA$1.5453, relatively unchanged from this morning’s opening levels.

Pound (GBP) Wavers Despite Soaring Inflation Figures

The Pound (GBP) is struggling to find strength today despite CPI printing above forecasts. Annual inflation rate increased to 9.4% in June, the highest since 1982 amid soaring food and energy costs. As the cost of living worsens, inflation has risen for the ninth consecutive month. The UK now has the highest rate in the G7.

Led by surging fuel prices, with unleaded petrol rising by 20p a litre in June, prices have jumped 0.8% between May and June. With costs expected to continue rising, the Bank of England (BoE) has warned that CPI could hit 11% this year. Hotter-than-expected inflation could push the BoE to hike rates by 50bps next month. The chancellor Nadhim Zahawi said of the economic challenges:

‘Countries around the world are battling higher prices and I know how difficult that is for people right here in the UK. So we are working alongside the Bank of England to bear down on inflation.’

With the relatively upbeat jobs data from yesterday, as well as the hawkish comments from BoE Governor Andrew Bailey, markets are starting to already price in a 50bps rate hike.

Elsewhere, the final round of the Conservative leadership race is set to take place today. With just three candidates left, the new Prime Minister will be expected by early September. But the political uncertainty that has been weighing on the Pound will likely continue until then. Investors are concerned with the varying and conflicting fiscal policies laid out by the candidates.

Canadian Dollar (CAD) Holds Steady Ahead of Inflation Reading

The Canadian Dollar (CAD) is holding its ground today as it awaits the CPI reading for June. After the Bank of Canada (BoC) surprised investors and hiked rates by 100bps to fight soaring inflation last week, the ‘Loonie’ could see an uptick with a continued hawkish stance from the central bank.

Lending further support to the Canadian Dollar today is cooling global recession fears as the Nord Stream 1 pipeline reopened, albeit at reduced levels. With fears allayed of Russia deciding not to reopen the pipeline after scheduled maintenance, Europe’s energy crisis has abated, for now.

Capping any further gains are slumping oil prices. Dropping by 1.75% on the day, crude oil could slip below $100 a barrel again as Covid fears resurface in China. With escalating odds of lockdowns threatening to slowdown the Chinese economy, the ‘Loonie’ could see a sap in demand.

Pound Dollar Exchange Rate Forecast: Canadian CPI to Weigh Further on the Pound?

Looking ahead, Canadian inflation rate is expected to rise to 8.4%, up from 7.7% the previous month. If inflation prints as expected, the ‘Loonie’ could see a boost.

Meanwhile, the Pound will be left vulnerable to market sentiment as data remains thin on the ground. Friday sees the release of retail sales, an expected second month of declining sales could weigh on Sterling.

Danny Tingle

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