Pound Canadian Dollar (GBP/CAD) Exchange Rate Climbs as UK Inflation Soars to Fresh 40-Year High

Pound Canadian Dollar (GBP/CAD) Exchange Rate Rallies as CPI Hits Double Digits

The Pound Canadian Dollar (GBP/CAD) exchange rate is strengthening as UK inflation surges to more than five times the Bank of England’s (BoE) 2% target.

At time of writing, the GBP/CAD exchange rate is around CA$1.5598, a 39% climb from this morning’s opening levels.

Pound (GBP) Strengthens on Boosted Interest Rate Hike Bets

The Pound (GBP) is rallying against most of its peers today as the annual inflation rate soared to 10.1% in the month of July. Printing above market forecasts of 9.8%, a fresh 40-year high, due to surging food and fuel costs. Meanwhile, the core inflation reading, which excludes volatile energy and food prices, climbed to 6.2% YoY for July, printing above forecasts of 5.9%.

Hotter-than-expected inflation buoyed investors as markets now expect the BoE to hike interest rates much quicker. Heightened rate hike bets could see boosts for the Pound. Debapratim De, Senior Economist at Deloitte, said:

‘With inflation above 10% and widely expected to rise further as energy bills increase, base interest rates look fairly low at 1.75%. We expect swift action from the Bank of England with the base rate potentially doubling by this time next year.’

However, keeping a lid on any significant gains for the Pound is the ever-worsening cost-of-living crisis. With food prices continuing to climb, as grocery bills hit record highs not seen since 2008, the looming energy bill hike is concerning both UK households and experts.

Canadian Dollar (CAD) Wavers as Oil Prices Continue to Slide

The Canadian Dollar (CAD) is struggling for demand today as crude oil prices remain under pressure as black gold nears a six-month low. Fears of a global recession picked up pace as the market becomes increasingly concerned over an economic slowdown.

Further weighing on the Canadian Dollar is the continued fallout from the softening of CPI inflation. A slowdown in the CPI reading lent support to hopes of inflationary pressures finally peaking. However, despite growing expectations of a dovish turn from the Bank of Canada (BoC), RSM Canada economist Tu Nguyen is confident that the BoC fully intends to keep to its 75bps rate hike path:

‘While this month’s inflation numbers are an encouraging start, Canada still has years to go before inflation is back down to the two per cent target.’

Pound Dollar Exchange Rate Forecast: Retail Sales to Boost the Canadian Dollar?

Looking ahead, data remains thin on the ground for the Pound Canadian Dollar until Friday. Retail sales for both Sterling and the ‘Loonie’ are due to print, and an expected second consecutive fall in UK sales could see the Pound falter. Whereas an expected increase in Canadian retail sales is likely to provide support to the ‘Loonie’.

Elsewhere, fluctuating oil prices are likely to cap any significant gains for the Canadian Dollar as Brent crude nears a six-month low.

Danny Tingle

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