The Impact of UK Inflation Data on GBP/CAD Exchange Rate
GBP/CAD Extends Correction to Fresh Lows
- The 1.7% rise in prices in September falls below the BoE’s 2.0% target.
- Probability of BoE cutting interest rates increases, decreasing foreign capital inflows and demand for Sterling.
GBP/CAD experienced a decline of almost half a percent to the mid 1.7900s following the release of lower-than-expected UK inflation data. The headline inflation figure of 1.7% in September put downward pressure on the Pound Sterling (GBP).
Lower inflation rates increase the likelihood of the Bank of England (BoE) cutting interest rates, which is negative for Sterling as it reduces foreign capital inflows.
Bailey Vindicated
Last week, the Pound depreciated after BoE Governor Andrew Bailey’s comments on the need for more aggressive interest rate cuts. The latest data supports Bailey’s stance, as headline inflation falls below the BoE’s target of 2.0%.
GBP/CAD Daily Chart
The downside for GBP/CAD may be limited despite weak inflation data from Canada. Canadian inflation rates have also declined, suggesting a potential interest rate cut by the Bank of Canada (BoC) at its upcoming meeting.
The decline in Canadian inflation, driven by lower gasoline prices, could benefit the GBP/CAD pair due to the impact on the Canadian Dollar (CAD).
Trump’s Impact on Canadian Dollar
Former President Donald Trump’s comments on potentially ripping up free trade agreements could pose challenges for the Canadian Dollar. His “America First” approach could lead to disruptions in trade with Mexico and Canada, affecting the CAD.
The uncertainty surrounding Trump’s trade policies adds a level of volatility to the currency markets, especially with the upcoming elections.
Overall, the interplay between UK and Canadian inflation data, central bank policies, and global political events can have significant implications for the GBP/CAD exchange rate. It is essential for investors to stay informed and adapt their strategies accordingly to navigate these fluctuations in the forex market.