The Pound Canadian Dollar (GBP/CAD) exchange rate climbed over the past week, with UK inflation prompting elevated interest rate hike bets.
What’s Been Happening: GBP Climbs as Inflation Stays in Double Digits
The Pound (GBP) wavered early last week on the back of an uptick in unemployment. However, forecast-beating wage growth elevated GBP investors’ bets on further tightening from the Bank of England (BoE).
The latest UK inflation data further boosted these bets; with headline inflation only cooling to 10.1%, GBP rallied. Investors began to price in the possibility of additional rate hikes beyond May’s expected 25bps rise.
The end of the week was less impressive for Sterling. While the latest service sector PMI pointed to faster-than-expected growth, a sharp fall in retail sales during March subdued GBP.
Meanwhile, an early-week cooldown in inflation dented the Canadian Dollar (CAD). This weakness was then cemented by falling oil prices through the week.
On Friday, further weakness was prompted by a fall in Canadian retail sales. As a result, the ‘Loonie’ failed to garner much support and ended the week on a low note.
Three Things to Watch Out for This Week
- BoC Deliberations
Scheduled to be published on Wednesday, the Bank of Canada’s (BoC) latest meeting minutes may weigh on the ‘Loonie’ as they are likely to justify the BoC’s pause.
- Canadian GDP
On Friday, Canada’s preliminary GDP data for March is due to print. A contraction of 0.2% is forecast, which could weigh heavily on the ‘Loonie’.
- UK CBI Data
Key data from the Confederation of British Industry (CBI) is being released over the week. A fall in optimism may weigh on GBP, while weakness in the retail sector may also dent the Pound.
Elsewhere for GBP/CAD, oil prices are likely to play a role in shaping the pairing. Due to the Canadian Dollar’s correlation to oil, further falls in prices could weaken the currency.
Furthermore, market sentiment may drive the pairing. With a lack of high-impact data for GBP, a risk-on market mood could bring some cheer.