The Pound Canadian Dollar (GBP/CAD) exchange rate endured volatile trade last week, but ended higher despite cooling UK inflation.
What’s Been Happening: Pound Rocked by Cooling UK Inflation
The Pound (GBP) began last week on firm footing amid an upbeat market mood.
This was followed on Tuesday by robust labour data. In September, the UK’s unemployment rate held at 4.2%, rather than ticking higher as forecast. Similarly, wage growth remained near record levels.
These fortunes soured on Wednesday, following the latest UK inflation data. Both core and headline inflation cooled more than forecast in October. This release prompted investors to pare back their bets on Bank of England (BoE) interest rate hike bets, stifling GBP.
Hawkish comments from BoE policymaker Megan Greene yielded modest tailwinds for Sterling on Thursday. Greene aimed to downplay the possibility of rate cuts, highlighting concerns over sticky inflation.
Friday saw Sterling slump once again, amid a shock contraction in UK retail sales. In October, sales unexpectedly dropped by 0.3%, prompting fresh recession anxieties amongst GBP investors.
Meanwhile, the Canadian Dollar (CAD) weakened against most major peers last week, due to volatile oil trade.
Falling oil prices dented the crude-linked ‘Loonie’ midweek, while CAD’s positive correlation with a weaker US Dollar (USD) kept the currency subdued even as oil recovered.
Three Things to Watch Out for This Week
- UK Autumn Statement
On Wednesday, UK Chancellor Jeremy Hunt is due to announce his Autumn Statement. Following today’s borrowing figures, there may be wiggle room for tax cuts, which may strengthen Sterling.
- Canadian Inflation
Canada’s latest inflation data is due to print this afternoon. Economists anticipate a cooldown in October’s rates, which could dent CAD.
- UK PMIs
The latest UK flash PMIs are due to print on Thursday, with another contraction in activity expected in November. Could signs of weak sector output harm GBP?
Pound Canadian Dollar Forecast
Elsewhere, the GBP/CAD exchange rate could see gains later this week, following the release of the latest Canadian retail sales data. In September, economists have forecast flat sales which could indicate underwhelming consumer spending, possibly weakening CAD.