Pound Canadian Dollar (GBP/CAD) exchange rate tumbles amid BoE rate cut bets
The Pound Canadian Dollar (GBP/CAD) exchange rate plunged this morning following the release of a weaker-than-expected UK consumer price index.
At the time of writing GBP/CAD is trading at around CA$1.6965, roughly down 0.5% from this morning’s opening rate.
Pound (GBP) Weakens on renewed BoE rate cut bets
The Pound (GBP) is retreating against the majority of its peers this morning after the UK released its latest inflation figures for January.
Despite an increase in energy bills, data from the Office for National Statistics (ONS) reported that headline inflation remained at 4% in January, overturning forecasts of an expected increase to 4.2%.
Core inflation in the UK also remained unchanged at 5.1% as opposed to a predicted increase to 5.2% in the same time period.
January’s CPI figures have undermined GBP exchange rates this morning, as it revived Bank of England (BoE) interest rate cut speculation, with some market participants pricing in cuts as soon as May again.
Martin Beck, chief economic advisor to the EY Item Club, comments:
The EY Item Club continues to think that CPI inflation should fall to, and perhaps even below, the Bank of England’s 2% target over the next few months.
‘The latest inflation data should reassure the MPC that the time to start cutting interest rates is approaching. The EY Item Club continues to expect the first cut in bank rate in May.’
Today’s CPI figures have seen the Pound shed almost all of the gains seen in the wake of yesterday’s upbeat labour report.
Canadian Dollar (CAD) firms as oil prices climb to three-month high
The Canadian Dollar (CAD) is trending higher this morning as the commodity-linked currency is underpinned by robust oil prices.
Although only slightly higher on the day, the brent crude benchmark is currently at its highest levels since November at over $83 per barrel.
The uptick in oil prices is supported by ongoing geopolitical tensions in the Middle East as disruption to Red Sea shipping threatens to tighten global supplies.
The ‘Loonie’ is also supported by its positive correlation with the US Dollar (USD) after the latter soared yesterday.
GBP/CAD exchange rate forecast: UK GDP to pressure the Pound?
Looking ahead, the Pound Canadian Dollar exchange rate could extend its losses with the publication of the UK’s latest GDP figures.
The preliminary report predicts GDP in the UK will contract by 0.1% in the fourth quarter of 2023, following on from the third quarter, where the British economy also shrank by 0.1%.
Should the reading confirm that the economy contracted by 0.1% for a second consecutive reading, this would push the UK into a technical recession on the back off two negative growth readings, and could potentially tank Pound exchange rates further.
Turning to the Canadian Dollar, a continued absence of market moving data set for release in the upcoming days may leave movement in CAD tied to oil price dynamics. If oil prices continue to climb the ‘Loonie’ is likely to firm.