GBP/CAD Exchange Rate Jumps on BoE Rate Hike Bets
The Pound Canadian Dollar (GBP/CAD) exchange rate is rallying today as an above-forecast UK inflation print increases the likelihood of a Bank of England (BoE) interest rate hike next month.
At the time of writing, the GBP/CAD was trading at around $1.6667, up roughly 0.6% from today’s opening levels.
Pound (GBP) Firms as Inflation BoE Rate Hikes
The Pound (GBP) is soaring today following the release of UK CPI data showing the UK is still dealing with high inflation.
The markets expected inflation to fall into single digits from February’s 10.4%, however, inflation rates fell short of predictions, falling to only 10.1%, while core inflation remained at 6.2%.
UK inflation came in at 10.1% last month. While this was down from 10.4% in February, it printed above forecasts it would slide to 9.8%.
Coupled with yesterday’s strong wage growth figures, today’s inflation data is bolstering expectations the Bank of England (BoE)will increase interest rates at their next meeting in May.
Chief economic advisor for the EY ITEM Club, Martin Beck said:
‘The fact that this follows the latest labour market data [yesterday], which showed healthy jobs growth and a surprise pickup in private sector wage rises, and a stronger-than-expected performance from the economy, will probably tip the balance towards another rate rise next month.’
Some analysts are even going so far as to forecast the BoE could now raise rates from 4.25% to 5% by the end of 2023.
Canadian Dollar (CAD) Falling in Wake of Inflation Drop
The Canadian Dollar (CAD) started today’s session on the back foot. Following yesterday’s inflation data and the ongoing fall in oil-prices, the commodity-linked ‘Loonie’ has continued to dip through the day.
The continued drop in inflation appears to validate the Bank of Canada (BoC) recent decision leave rates on hold at 4.5% as it balances the need to return inflation to its 2% target without tipping the country into a recession.
BoC Governor Tiff Macklem commented:
‘Continued strong demand and the tight labour market are putting upward pressure on many services prices, and those are expected to decline only gradually.’
While the Canadian Dollar was able to mitigate some of the losses thanks to its positive correlation with the US Dollar (USD). A continued decline in oil prices ensures the
Pound Canadian Dollar Exchange Rate Forecast: Will Slumping Retail Sales Reverse Sterling’s Gain?
Looking to the second half of the week, the Pound Canadian Dollar exchange rate could face pressure with the publication of the UK’s latest retail sales figures at the end of the week.
Friday’s figures are forecast to report sales growth contracted in March, which could raise growth concerns and pull Sterling lower.
Also of note will be the UK’s latest PMIs. If growth in the UK’s vital services sector underperforms, this could place even more pressure on the Pound.
Meanwhile Canada’s own retail sales figures are also expected to report a decline in sales growth. Will this drag on the ‘Loonie’ later in the week?