Pound Strengthens Against Canadian Dollar on Moderate UK Economic Data

March 12, 2023
Pound Strengthens Against Canadian Dollar on Moderate UK Economic Data March 12, 2023 Lennox Hamilton

In spite of Canada having a respectable employment report for February, the exchange rate for the British pound to the Canadian dollar reached its highest level in a month just before the weekend. The strengthening of the pound was aided by a combination of improved economic statistics from the United Kingdom and lower than expected interest rate forecasts from North America.

The private sector contributed substantially to the economy’s expansion of 22,000 new employment in February, which was further supported by advances in the fields of health care, support services, and public administration. Because of this, the average hourly salary went up by 5.4%, up from 4.5% where it had been before. “the impacts of Bank of Canada interest rate hikes from last year are still having an effect on household borrowing costs with a lag,” commented Nathan Janzen, associate chief economist at the Royal Bank of Canada.

The Bank of Canada (BoC) made the decision this week to maintain the status quo with regard to interest rates after determining that prospective obstacles were more important than recent economic statistics. This was the first time in one year that the decision was not to raise rates. The statistics released on Friday did not appear to have a positive impact on the Canadian Dollar. This may be due to the decision made by the BoC on Wednesday, the declines in the value of the US Dollar, and the general decline in the value of North American currencies.

As a result of the Bank of Canada’s announcement of their “conditional pause” and decision to maintain the cash rate at 4.5% until they have a better comprehension of how the rate increases from the previous year are affecting the economy, the loonie experienced three losses when compared to some other currencies. (including the Pound). “The jobs data may not be enough to make the BoC reconsider their stance, but CAD remains weak in the short term,” commented Mazen Issa, a senior FX researcher at TD Securities. There was an increase in work development in the United States, but salary growth and unemployment both declined.

Issa thinks that the USD/CAD will probably continue to take a protective stance against currencies like the ECB and the EUR due to a vulnerable risk mentality, which means that the CADJPY downtrend should remain intact. In addition, Issa speculated on Friday that the USD/CAD pair may continue to see short-term support in the neighborhood of 1.3700-1.3750 for the foreseeable future. In addition, figures released by the Office of National Statistics (ONS) suggest that the UK economy experienced a recovery in January contributed to the rise in the GBP/CAD exchange rate. Despite this, Adam Cole from RBC Capital Markets is still bearish on the GBP and would typically attempt to decline gains.

The data that was published for January’s GDP showing a 0.3% recovery, correcting the -0.5% that was shown in December, has improved confidence about the prognosis and given some positivity ahead of the forthcoming budget in March. Shaun Osborne, Chief FX Strategist at Scotiabank, indicates that the economy of the United Kingdom may hold up better than originally expected in the early part of this year, and may even be able to escape entering a recession. This is the case despite the fact that prospective assistance programs are shrouded in uncertainty. The financial markets are presently projecting a 25bps for the Bank of England meeting that will take place on March 23.

 

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