The Pound Canadian Dollar (GBP/CAD) exchange rate strengthened last week, amid signs of persistent inflationary pressures.
What’s Been Happening: Pound Rises amid Sticky Inflation
Hawkish comments from Bank of England (BoE) Chief Economist Huw Pill saw the Pound (GBP) start the week on solid footing.
However, Sterling was unable to cement this support following the publication of the latest UK labour data. Cooling wage growth and signs of looseness in the UK jobs market served to weaken GBP.
On the other hand, September’s inflation data printed above forecasts on Wednesday. Headline inflation held at 6.7%, which revived BoE interest rate hike bets, though GBP’s gains were trimmed by a souring market mood.
Data was in short supply on Thursday, leading to directionless trade for Sterling. Then, a sharp contraction in UK retail sales sank GBP on Friday.
Meanwhile, the Canadian Dollar (CAD) saw mixed trade over the week, as the crude-linked currency traded in line with oil prices. Crude oil prices were volatile throughout the week, dragging CAD exchange rates lower as they fell.
On Tuesday, September’s consumer price index data cooled more than anticipated. This led to pared back Bank of Canada (BoC) interest rate hike bets, denting the ‘Loonie’.
However, as oil prices strengthened on Friday, the commodity-sensitive ‘Loonie’ managed to regain some ground.
Three Things to Watch Out for This Week
- UK PMIs
This morning, the UK PMIs showed further slowdown in the vital service sector. While manufacturing showed improvement, both readings remained negative, which could weaken GBP over the session.
- BoC Interest Rate Decision
The Bank of Canada (BoC) are expected to keep rates held on Wednesday, which could dent the ‘Loonie’. Consistently cooling inflation may prevent any hawkish forward guidance, further limiting CAD.
- Risk Appetite
As the conflict in the Middle East continues, bearish trade may cloud markets. This could damped the increasingly risk-sensitive Pound.
Pound Canadian Dollar Forecast
The GBP/CAD exchange rate could see further volatility over the week, due to volatile oil trade. As the conflict between Hamas and Israel continues, oil prices may be further affected. Strengthening prices could weaken GBP/CAD.