Poor Data Sends British Pound to Canadian Dollar (GBP/CAD) Exchange Rate Lower
The Pound is currently trading lower in the GBP/CAD pairing after disappointing data on Thursday, whilst the ‘Loonie’ remains consistently strong.
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The GBP/CAD pairing has seen highs of 1.8327 and lows of 1.8200 this session.
The Bank of England has today published data pertaining to the much speculated and anticipated interest rate hikes in the UK.
With investors hoping for a rise after Mark Carney’s previous statements that the UK would see interest rate hikes sooner than expected, the Bank of England governor has come under criticism for being ambiguous.
Economists amid the ambiguity seem to be placing more faith in the most recent of Carney’s previous suggestions that any change in the UK interest rates will be ‘gradual and limited.’
Economist for IHS Global Insight, Howard Archer, has commented: ‘Even if the Bank of England does start edging interest rates up before the end of 2014, we will still expect them to only reach 1.25% by the end of 2015, 2.0% by the end of 2016 and 3.0% by the end of 2017.’
With slow rate rises on the horizon for the UK, and the current interest rate being maintained at 0.5%, the Pound has softened slightly against the ‘Buck’.
With interest rates having remained at 0.5% since the first quarter of 2009, and unemployment levels shrinking, impatience for the rate hikes are still hot topic in the economic world.
The Bank of England also published its Asset Purchase Target data today, holding their current quantitative easing programme at 375B.
Economist for the BCC (British Chambers of Commerce), David Kern, stated: ‘The [Bank’s Monetary Policy Committee] has made the right decision to keep interest rates and quantitative easing on hold. To sustain business confidence the MPC must strike to deliver a more clear and consistent message on the future path of interest rates. The risks from raising rates prematurely are much greater than the risks of waiting a little longer.’
Thursday has also been disappointing for the Pound by way of the release of May’s UK Trade Balance data which has shown the UK’s widest deficit in four months.
UK manufacturers have exported less cargo to the EU, and less oil has been sold which has shed light on the difficulty the government faces in its attempt to recover the UK economy.
Reuters explain the poor Trade Balance data as such: ‘The gap was 9.20 billion Pounds ($15.8 billion) compared with 8.81 billion Pounds in April, the Office for National Statistics said in London today. Economists had forecast a deficit of 8.75 billion Pounds, based on the median of 18 estimates. Exports rose 0.6% and imports climbed 1.7%, largely due to 1.2 billion Pounds of aircraft purchases the ONS said.’
Conversely the ‘Loonie’ is reaching highs on Thursday, currently trading against the US Dollar at 0.9376, playing close to the 94 cents barrier.
There are many reasons the Canadian Dollar has gained in strength, but commodity prices are a major factor, most importantly the copper price and demand.
Economist Doug Porter commented: ‘The commodity that has the tightest correlation with the Canadian Dollar in recent years is copper—not oil, not gas, not lumber and not gold. There are many specific factors that can knock this relationship off course, at least temporarily. But both copper and the ‘Loonie’ tend to ebb and flow with the broader fortunes of the global economy and the appetite for risk. So, the recent rebound in both prices is at least a mild thumbs-up for the global outlook.’
However Canada now awaits highly influential Net Change in Employment and Unemployment Rate data released on Friday which could prove influential for the ‘Loonie’.
Currently the Bank of Canada is in an interesting position as economists speculate that they may try jawboning tactics to bring the strong Canadian Dollar down.
Economist Stéfane Marion has speculated: ‘All in all, the Bank of Canada will do what it can, likely via jawboning, to weaken the Canadian Dollar and assist the export recovery.’
The Pound looks set to wallow in its recent poor data state, whilst the ‘Loonie’ may surge higher on Friday if data proves favourable.