The Pound Canadian Dollar (GBP/CAD) exchange rate collapsed over the past week, following a sharp cooldown in UK inflation.
What’s Been Happening: Cooling Inflation Crushes the Pound
Following a dry start, the Pound (GBP) endured volatile trade on Tuesday, as investors looked ahead to Wednesday’s inflation data. While some saw room for further interest rate hikes, trepidation ruled the day.
Come Wednesday, Sterling crashed following the publication of the consumer price index. Both core and headline inflation cooled below forecasts, with headline CPI falling to 7.9% – markedly below forecasts of 8.2%.
As such, Bank of England (BoE) rate hike bets dissipated, with markets shifting to expect a more modest 25bps hike as opposed to a bumper 50bps increase. This sapped sentiment toward Sterling through to the week’s end, prompting investors to ignore a surprise 0.7% growth in retail sales over June on Friday.
Meanwhile, the Canadian Dollar (CAD) saw a promising start to the week, rising without a clear catalyst. This momentum was then carried through amid Canada’s own CPI release, with some measures of underlying inflation surprising to the upside.
Similarly, rising oil prices boosted the commodity-linked ‘Loonie’. However, Friday’s shock slowdown in retail sales dented CAD, leaving it to end the week on a flat note.
Three Things to Watch Out for This Week
- Canadian GDP
Friday sees the release of the latest set of GDP data for Canada, with the focus being on June’s preliminary reading. Will a slowdown in growth dent the ‘Loonie’?
- UK CBI Data
This morning, the Confederation of British Industry (CBI) is set to release a duo of data. Could a recovery in business optimism strengthen Sterling?
- Oil Price Volatility
Owing to its crude-linked nature, CAD could trade in tandem with oil price fluctuations. Currently, oil prices are dropping again, which could weaken CAD rates today.
Elsewhere, as the Canadian Dollar shares close ties with the US Dollar (USD), the Federal Reserve’s interest rate decision on Wednesday may provide impetus. If the Fed offers hawkish forward guidance, CAD could rally in tandem with USD.