Pound Canadian Dollar (GBP/CAD) exchange rate holds steady as data awaited
The Pound Canadian Dollar (GBP/CAD) exchange rate is trending sideways this morning as Canadian Dollar (CAD) investors await retail data which will reflect upon the resilience of consumer activity. Meanwhile, the UK’s latest PMIs have printed mixed, inspiring some volatility.
At the time of writing, GBP/CAD is trading at C$1.7058, virtually unchanged from yesterday’s levels.
Pound (GBP) sinks as UK manufacturing remains in contraction
The Pound (GBP) encounters headwinds this morning following the release of the UK’s latest PMI data. The statistics show that while service-sector activity has held steady in February, the UK’s manufacturing sector remains in contraction territory.
The latest services PMI exceeded expectations in remaining unchanged at 54.3, as the release had been forecast to print at 54.1, marking a slowdown in the sector’s recovery. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, strikes an upbeat tone in analysing the data:
‘UK economic growth has accelerated in February, with the early PMI survey data pointing to the largest rise in business activity for nine months,’ he says; ‘This is by no means a one-off improvement, as faster growth has now been recorded for four straight months after a brief spell of decline late last year.’
Yet his optimism is countered by ongoing concerns surrounding inflation. Williamson conceded a risk of inflation getting stuck at its most recent level of 4% rather than falling to the BoE’s 2% target; today’s data shows that average cost burdens increased in February at the fastest pace for six months. Higher labour costs and rising freight costs for manufacturers – linked to the Red Sea crisis – have contributed towards the current situation.
Uncertainty surrounding the Bank of England’s (BoE) response to such pressures, as well as political tensions domestically and overseas, are likely contributing towards Sterling’s downtrend.
Canadian Dollar (CAD) recovers post inflation-induced slump
The Canadian Dollar is climbing against several of its peers today, staging a modest recovery from its tumble earlier in the week. A greater-than-expected fall in headline inflation in January depressed the ‘Loonie’ on Tuesday as investors anticipated a dovish response from the Bank of Canada (BoC).
Nevertheless, a recovery in oil prices is helping to buoy the currency alongside expectations for growing retail sales in February. The latest spending data is due for release this afternoon and is predicted to print at 0.8% for the month of December.
Commodity prices have fluctuated recently given ongoing trade disruptions in the Red Sea. As oil prices climb on supply concerns, the oil-linked ‘Loonie’ benefits; yet fears of waning demand in China – the world’s largest oil importer – have capped CAD gains.
Speaking last week, Tamas Varga, analyst at oil broker PVM, gave an optimistic assessment – indicating that crude exports would continue to support the Canadian Dollar through 2024. Varga said:
‘Although this year’s demand growth will be much slower than that of 2023, global oil inventories should still decline throughout the current year if OPEC keeps output low, as expected.’
CAD trading this afternoon is likely to be shaped by fresh data and the expected influence of spending statistics on the BoC’s outlook. If the Canadian economy is deemed resilient, markets may revise expectations for imminent interest rate cuts.
GBP/CAD forecast: exchange rate to sink as weekend approaches?
The Pound Canadian Dollar exchange rate could lengthen its downward trend this afternoon, if retail activity in Canada improved in December as expected. Such an outcome would contrast with the UK’s dismal December spending scene, highlighting a disparity in the two economies’ performances.
On the other hand, growing convictions that Britain is leaving last quarter’s recession behind could lend the Pound a boost. If Sterling traders are convinced of the economy’s resilience, GBP may climb on expectations of additional growth ahead.