GBP/CAD exchange rates are set to be the focus for markets today with a host of UK economic data to be released with the potential to cause serious volatility in Sterling’s value. Furthermore, Governor Poloz of the Bank of Canada will be speaking this afternoon – his recent mention of negative interest rates mean that markets will listening intently to his intentions for the economy now that crude oil prices have hit an 11 year low.
Today UK inflation data will likely cause the fifth consecutive monthly fall on Sterling’s value. Currently the British economy is experiencing the worst inflation levels since records began, which recently caused the expected interest rate hike for the UK in the spring of 2016 to be pushed back until at least 2017.
The delay was because the Bank of England expects inflation to get worse before any improvements occur, and it seems that today is when the further falterings will begin. With the recent drop in oil prices (which affects the UK as well as Canada), and with the upcoming Christmas sales, inflation is well positioned to deteriorate further as prices fall. Good news for consumers, but bad for businesses – and hence the Sterling and GBP/CAD weakness which is expected to follow.
However, later on in the afternoon some of the expected GBP/CAD losses this morning could be reversed.
Governor Poloz is scheduled to deliver a speech which could rattle the markets following the recent drop in Crude Oil below $37 per barrel – a severe blow to the Canadian economy.
On December 8 in his last speech Poloz mentionned negative interest rates as an option. Whilst he also said he does not think this is necessary he simply wanted markets to be aware they were considering every possible option.
The mere mention of it caused GBP/CAD to rocket up by 2 and a half cents last week – can we expect more of the same this week? I wouldn’t be surprised should he explore this option further in his speech. The Canadian Dollar is already an unattractive prospect and the idea that holding onto it would see no capital return will be the final straw for many investors.
The balancing act for Canadian Dollar buyers today is whether this Canadian Dollar weakness will outweigh the loss of value on Sterling this morning. The safer bet is that it wont. Poor Sterling performance is near certain whilst Poloz may not even discuss negative interest rates at all.
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