Pound Canadian Dollar Exchange Rate Slumped to Nine-Year Low amid Inflationary Woes

The Pound Canadian Dollar (GBP/CAD) exchange rate plummeted last week after UK inflation hit fresh 40-year highs, exacerbating the cost-of-living crisis.

What’s Been Happening: GBP/CAD Exchange Rate Drops as Cost-of-Living Crisis Worsens

The Pound started strongly as unemployment rate remained unchanged for the second month in a row. The number of people entering full time employment rose by 296,000, suggesting a robust labour market.

Midweek saw annual inflation rate rise to 9.4% in June, hitting the highest level since 1982. Sterling saw an initial spike as strong unemployment data and hotter-than-expected inflation bolstered bets for bolder rate hikes from the Bank of England (BoE).

However, inflationary pressures soon sapped demand, made worse by a continuing slump in retail sales. As the cost-of-living crisis worsens, consumers are spending less with the biggest drop in clothing sales as they fell by 4.7%.

Meanwhile, the Canadian Dollar started the week on the back foot before strengthening despite domestic inflation hitting 8.1%, falling short of market forecasts of 8.4%.

Capping any further gains for the ‘Loonie’ was the fluctuating oil market. Crude oil hit a low of $94.70 as troubling news out of China stoked global recession fears. Rising Covid cases threatened further lockdowns and restrictions, potentially halting the world’s second largest economy and sapping oil demand.

Three Things to Watch Out for This Week

  1. UK Politics

The final two candidates continue to battle it out as the race to replace Boris Johnson heats up. With conflicting tax plans and growing party divisions, investors will remain cautious.

  1. Canadian GDP

After contracting May, will a stalling of economic growth in Canada last month place further pressure on the ‘Loonie’?

  1. Oil Prices

If lockdowns in China continue to stoke global recession fears, the commodity-linked Canadian Dollar could see a drop.

Pound Canadian Dollar Forecast

Elsewhere, the GBP/CAD exchange rate could see further fluctuations as global recession fears continue to grow, with the potential to sap both the ‘Loonie’ and the Pound.

Danny Tingle

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