Pound Canadian Dollar (GBP/CAD) Exchange Rate Ticks Up as Canadian Unemployment Rises

Pound Canadian Dollar (GBP/CAD) Exchange Rate Jumps on Downbeat CA Data

(Updated 16:50, 04/08/2023) The Pound Canadian Dollar (GBP/CAD) exchange rate trended sharply up this afternoon, following the release of jobs data from both Canada and the United States. As forecast, Canadian unemployment printed at 5.5% for the month of July: the third consecutive increase.

While Reuters journalists remarked that the latest report ‘cemented analyst expectations that the Bank of Canada (BoC) will pause its interest rate hike campaign’, Statistics Canada acknowledged ‘the possibility that the BoC may still raise interest rates in September’, given the fact that unemployment remained well below pre-pandemic levels.

Elsewhere, nonfarm payrolls in the US printed below expectations at 187K; last month’s figure was also revised lower. The release was a blow to the ‘Greenback’, which tumbled against the majority of its peers and may have dragged upon CAD morale – however, the implications of the data were not straightforward.

An initial interpretation reveals that American hiring has normalized: an increase of 185,000 roughly matches pre-pandemic levels. On the other hand, wage growth is higher than before March 2020, meaning the Federal Reserve may see fit to hike interest rates again next month.

Original article continues below:

Pound Canadian Dollar (GBP/CAD) Exchange Rate Trends Sideways Ahead of Key Data

The Pound Canadian Dollar (GBP/CAD) exchange rate is rangebound so far today, having traded broadly higher overnight in the wake of the Bank of England (BoE)’s interest rate decision. Looking ahead, traders anticipate a mixed employment report from Canada.

At the time of writing, GBP/CAD is trading at C$1.6973, relatively unchanged from this morning’s opening levels.

Pound (GBP) Holds onto Post-BoE Gains

The Pound (GBP) is trading in a narrow range today, as investors continue to digest the Bank of England’s interest rate decision and policy statement.

The BoE’s growth forecasts for the next financial year are admittedly dire: UK Chancellor Jeremy Hunt conceded that the country is stuck in a ‘low-growth trap’ while Dr Linda Yueh, economics fellow at Oxford University, says:

‘Growth is normally at least 1%. But the bank has said in 2024-2025, the growth rate is going to average only 0.25%. It’s a quarter of a percent increase in national output, or national income. I thought it would be at least 1.25%.’

Nevertheless, GBP morale appears to be supported, perhaps by reports that inflation is finally beginning to ease. While the Bank of England’s interest rate hike was met with mixed reviews, onlookers are left in no doubt of the central bank’s commitment to taming spiralling price pressures.

Indeed, of the BoE’s nine policymakers, two voted for a larger hike yesterday – arguing that swelling private sector wage growth was adding to inflationary pressures.

Canadian Dollar (CAD) Traders Bearish Ahead of Jobs Report

The Canadian Dollar (CAD) is stuck trading in a limited range against the majority of its peers, as investors await this afternoon’s employment data.

Unemployment is expected to print at 5.5% for the month of July: 0.1% above the previous month and the highest reading since January 2022. If the release prints as forecast, CAD morale may weaken as markets consider that current conditions do not warrant further policy tightening measures from the Bank of Canada (BoC).

Also coming up this afternoon are an unemployment rate release from the US, as well as the publication of its latest nonfarm payrolls reading. The outcome of this data could influence the ‘Loonie’, given the strong trading relationship between Canada and the United States.

If the US economy created 200K jobs in July of 2023, this would mark the lowest reading since December of 2020. Such an outcome may dampen the US Dollar (USD) and by extension, CAD.

Elsewhere, crude oil prices are rising. Given the commodity-linked nature of the Canadian Dollar, a continuing uptrend in oil prices could boost the ‘Loonie’. Canada’s Ivey PMI, due to print at 2pm UTC, is also likely to affect CAD exchange rates.

GBP/CAD Forecast: Data Outcomes to Inspire Volatility?

While GBP/CAD appears to have found some sort of balance following the BoE’s decision, the relative stability of the exchange rate may be undermined this afternoon by several key data releases.

Rising unemployment in Canada could weaken the ‘Loonie’, buoying GBP/CAD; yet signs of resilience in the US labour market could boost USD, lending tailwinds to the Candian currency.

Subsequently, signs of growth in the Canadian economy according to July’s Ivey PMI may further support CAD, depressing the Pound Canadian Dollar exchange rate.

On the other hand, conviction in the UK that higher inflation is on its way out may continue to boost Sterling sentiment. If this is the case, GBP/CAD may experience rocky trading ahead.

Olivia Evershed

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