Pound Canadian Dollar (GBP/CAD) exchange rate spikes to 8-day high

GBP/CAD exchange rate shoots up as Canadian inflation misses forecasts

The Pound Canadian Dollar (GBP/CAD) exchange rate trended steeply upward earlier today as Canada’s latest inflation data missed forecasts, sapping support for the Canadian Dollar (CAD). Meanwhile, the Pound (GBP) trades in a mixed range amid a lack of significant domestic data.

At the time of writing, GBP/CAD is trading at C$1.7278, having climbed by more than 0.2% in the past 24 hours.

Canadian Dollar (CAD) plummets on lower-than-expected inflation

The Canadian Dollar is tumbling against its peers today, dented by the latest consumer price data. In February, headline inflation fell to 2.8% on an annualised basis, from 2.9% in January and below the predicted increased to 3.1%.

Core inflation, though expected to weaken, fell by more than expected – to 2.1% for the year to February. On a monthly basis, core inflation printed at 0.1%, unchanged from January, while headline inflation reached 0.3%.

Commenting upon the release, Statistics Canada observed that the easing of inflationary pressures affords the Bank of Canada (BoC) more leeway to start monetary loosening in the second half of 2024. Today’s data marked the lowest reading since June 2023, with analysts noting that the cost of cellular services dropped considerably, along with internet access services and groceries:

‘Prices for food purchased from stores continued to ease on a year-over-year basis in February compared with January. Slower price growth was broad-based with prices for fresh fruit, processed meat and fish declining, while other food preparations, preserved fruit and fruit preparations, cereal products and dairy products decelerated in February.’

Central bank officials have yet to comment formally upon the data; the next rate announcement will occur on April 10, in which the BoC is expected to remain noncommittal. Following today’s data, however, money markets have increased their bets for a 25 basis point rate cut in June to 75%, from 50% previously.

Pound (GBP) subdued as investors await key data

The Pound, while firming against the embattled ‘Loonie’, faces headwinds in other exchange rates as traders are on tenterhooks ahead of tomorrow’s UK inflation data. If consumer prices eased in February as expected, the Bank of England (BoE) may be compelled to consider its rate-cutting schedule, potentially inspiring downbeat sentiment.

The BoE has recently been considered the most hawkish amongst the main three central banks: the Bank of England, Federal Reserve and European Central Bank (ECB). However, stronger-than-expected inflation in the US according to last week’s data inspired bullish speculation amongst US Dollar (USD) investors, as the perceived likelihood of monetary policy divergence between the BoE and the Fed diminished.

Investors now await an updated monetary policy outlook from BoE officials before they place bets upon the central bank’s rate cut schedule. Their bearish stance subdues GBP, while a lack of data elsewhere leaves the currency exposed to further losses.

Analysts at Scotiabank neatly summarise the situation, remarking that ‘UK CPI data due on Wednesday and Thursday’s BoE decision may help limit near-term losses.’

Recent signs of economic weakness in the UK’s economy are also continuing to weigh upon the Pound: in the three months to January, GDP printed at –0.1%. Meanwhile, the British manufacturing sector remained in contraction in February and service-sector growth printed below forecasts; analysts observed that input prices accelerated to their highest point in five months amid elevated wage pressures.

GBP/CAD exchange rate forecast: UK inflation, Fed decision in focus

The Pound Canadian Dollar exchange rate is likely to trade tomorrow according to the latest UK inflation data as well as the Federal Reserve’s interest rate decision. As the US economy is the largest in the world, any developments – including central bank decisions – have repercussions for the global currency market.

Initially, GBP/CAD may slide, if UK inflation fell last month as forecast. Expectations for a more dovish Bank of England are likely to weaken the Pound, although a higher-than-anticipated release could alternately boost the currency.

In the European evening, traders will be paying close attention to the Fed’s forward guidance concerning interest rates. If officials strike a hawkish tone in the press conference following the rate decision, the US Dollar could climb; overall risk sentiment would likely turn bearish in this case, as the prospect of prolonged restrictive policy in the US puts pressure upon global economic growth.

Nevertheless, bold commentary from Federal Reserve policymakers could buoy the US Dollar, simultaneously inspiring Canadian Dollar tailwinds given the two currencies’ positive correlation.

Olivia Evershed

Contact Olivia Evershed

Do Not Sell My Personal Information