UK Growth Readings Get Downwardly Revised – GBP/CAD Exchange Rate Responds with Volatility
The Pound Canadian Dollar (GBP/CAD) exchange rate fluctuated on Thursday, tumbling in the morning in reaction to the UK’s soft growth figures but climbing later into the day as markets responded to a disappointing Canadian retail sales print.
On the UK growth front, the Office for National Statistics (ONS) downgraded the UK’s Q4 2017 GDP readings from 0.5% to 0.4%, with the year-on-year reading also lowered from 1.8% to 1.7%.
This was ultimately caused by a drop in business investment around this period, with British businesses tentative to invest until a better degree of clarity is available regarding the UK’s post-Brexit prospects.
This news is all the more significant, however, in that it perceivably diminishes the chances that the Bank of England (BoE) will move for a rate hike in May.
Pantheon Economics Economist Samuel Tombs echoed this point:
‘Downward revision to Q4 GDP puts the UK back at the bottom of the G7 growth leader board for 2017. This is not an economy that obviously needs to be cooled with higher interest rates’.
Canadian Retail Sales Figures Plummet – Medium-term CAD Exchange Rate Prospects Limited
According to Statistics Canada, Canadian retail sales unexpectedly plummeted at the end of 2017 by -0.8% month-on-month, missing the forecast of a 0.4% rise and the previous period’s print of 0.3%.
On an annual basis retail sales dropped from 6.5% to 5.8%, missing the forecast of a rise to 6.7%.
This marked the steepest decline in retail trade since December of 2015, with the fall occurring in broad-based form across general merchandise, health and personal care and electronics and appliances.
There was, however, a rise reported in the number of new car sales and at food and beverage stores.
CIBC World Markets Economist Andrew Grantham went further, claiming that the result would weigh on growth readings for that month:
‘Rapid consumer spending was a big factor behind the strong [gross domestic product] growth seen throughout the first half of 2017, and it is clear from today’s release that momentum was already starting to fade toward the end of the year’.
This is also the third release from the past two weeks that has revealed unexpected weakness in Canada’s December activity – unexpected declines that continue to weigh on market hopes for ongoing rate hikes from the Bank of Canada (BoC).
GBP/CAD Exchanges Expected to Climb on Friday if Canadian Inflation Disappoints
All eyes will be on Canada’s January consumer price index (CPI) readings tomorrow, with markets expecting a sizable slip from 1.9% to 1.5% in the year-on-year reading but a jump from -0.4% to 0.1% in the month-on-month print.
A drop to 1.5% would be well below the central bank’s goal of 2%, and could belay the possibility of the central bank moving hawkishly in the months ahead.
Beyond this, the ‘Loonie’ is currently in a rather vulnerable state after the disappointing retail sales figures, hence the market bias could see the Canadian Dollar continuing to suffer.
Lacking much in the form of notable British data releases markets will instead focus on any Brexit-related news for the UK – with any signs of progress liable to give Sterling a shot in the arm, and an ongoing deadlock liable to keep GBP/CAD slightly limited.
Comments are closed.