Yesterday was an extraordinary day for Sterling. Most analysts were expecting the FED interest rate decision to govern Canadian Dollar rates. As the US is Canada’s largest trading partner, any important economic information released from there has an indirect effect on Canadian Dollar value. But rather than poor US data weakening the CAD, it was strong UK data which increased the value of the Pound across the board against all major currencies.
The dark horse data release that no analysts had even hinted at, was wage growth in the UK. This came in at a staggering 1.2% for last month and shows strong continuation for our recovery. The reason why this data was received so well by markets, with GBP/CAD rates moving from 1.91 to just under 1.94, was because strong wage growth is arguably the most important factor when deciding when to raise interest rates in the UK economy.
Interest rates were lowered in the first place to stimulate spending, why save your money when it is earning no value deposited elsewhere? But with wage growth now higher than inflation (the increase in the price of goods), then the country as a whole will have a huge increase in disposable income. Low interest rates may soon not be needed as an incentive to spend and catalyse economic growth. As such the timeline for an interest rate hike in the UK was brought forward, pushing GBP/CAD rates further forward as well.
Excellent buying opportunities have been created now, a surprise seemingly out of nothing. Tomorrow will have significant data releases for the Canadian economy. We will have indications later today on whether this data will reverse or reinforce gains made today for the Pound against the Canadian Dollar, until then call into the trading floor on 01494 787 478 to discuss how to take advantage of these historic 6 year highs. Ask for Joshua – [email protected]