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Bank of Canada (BOC) Rate Hike Bets Surge as Canadian Inflation Impresses

Published: 21 Dec at 4 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada,

Pound Sterling (GBP)
Decent UK data in recent sessions has done little to support Pound strength, as the British currency has struggled to hold its ground against some major currencies and has fallen against others.

Thursday’s UK data was mixed and gave investors little reason to believe Britain’s economic outlook was improving. November’s UK public sector net borrowing report came in at £-8.12b, slightly better than the forecast £-8.3b.

However, GfK’s UK consumer confidence survey from December unexpectedly dropped from -12 to -13. Analysts at GfK noted there were little signs that confidence would improve in the coming months either.

On top of UK data doing little to make Sterling more appealing, investors are still anxious about Britain’s 2018 outlook. UK-EU trade talks are unlikely to begin until March 2018, which would give negotiators less than a year to secure a post-Brexit transitional period or trade deal.

Euro (EUR)
The Pound to Euro exchange rate trended near its worst weekly levels for most of Thursday’s European session.

Demand for the Euro was bolstered by the day’s Eurozone confidence stats. Consumer confidence in The Netherlands improved from 23 to 25, while the Eurozone’s overall consumer confidence projection unexpectedly rose to 0.5.

While the previous Eurozone confidence figure was revised lower from 0.1 to 0.0, the 0.5 result impressed investors as beating 0.0 expectations and being notably higher than even November’s initial figure had been.

US Dollar (USD)
The Pound to US Dollar exchange rate slipped from its highs on Wednesday evening and Thursday, due to underwhelming UK ecostats.

The US Dollar was still able to push GBP/USD slightly lower on Thursday, despite news that the final US Gross Domestic Product (GDP) report for Q3 had fallen short of expectations. US growth was expected to improve from 3.1% to 3.3% quarter-on-quarter, but only rose to 3.2%.

Q3’s final quarterly Personal Consumption Expenditure (PCE) results disappointed too, coming in at 1.5% rather than the expected 1.6%. Core PCE rose to 1.3% rather than the forecast 1.4%.

This data was likely to weigh slightly on the market’s outlook for the US economy in 2018, but Sterling failed to benefit from USD weakness.

Australian Dollar (AUD)
The Pound to Australian Dollar exchange rate tumbled on Thursday afternoon, as markets looked towards riskier currencies following the day’s underwhelming US ecostats.

As US growth and PCE data fell short of market expectations, 2018 Federal Reserve interest rate hike bets dropped and this left traders hungrier for risk-correlated investments.

After trading above the week’s opening levels in recent sessions, GBP/AUD trended lower at the time of writing. The Australian Dollar had already been relatively appealing this week due to an optimistic tone in the latest Reserve Bank of Australia (RBA) meeting minutes.

New Zealand Dollar (NZD)
The Pound to New Zealand Dollar slipped back towards the week’s opening levels on Thursday afternoon, due to a boost in demand for risk-correlated currencies amid the latest underwhelming US ecostats.

The New Zealand Dollar saw a surge in demand in the morning too, as New Zealand’s Q3 Gross Domestic Product (GDP) results beat expectations in both prints. The quarterly growth rate came in at 0.6% while the yearly figure printed at an impressive 2.7%.

Canadian Dollar (CAD)
After holding its ground for most of the week so far, the Pound to Canadian Dollar exchange rate plunged on Thursday due to concerning UK consumer confidence data, Brexit uncertainties, and a boost in market demand for risk-correlated currencies.

On top of underwhelming US data, markets also found the risky Canadian Dollar much more appealing following the day’s impressive Canadian ecostats.

Canada’s retail sales results were impressive in October, surging from 0.2% to 1.5% month-on-month and rising from 6.5% to 6.7% year-on-year.

Canada’s November inflation rate beat expectations in all notable prints too. Monthly inflation printed at 0.3%, yearly inflation at 2.1% and the yearly core inflation rate jumped from 0.9% to 1.3% rather than slowing to 0.8% as forecast.

Overall, the data bolstered market expectations for the likelihood of continued interest rate hikes from the Bank of Canada (BOC) in the coming months and left the Canadian Dollar far more appealing.
As of Thursday, 21st December 2017, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.1283, GBP USD exchange rate was 1.338, GBP AUD exchange rate was 1.7362, GBP NZD exchange rate was 1.9069, and GBP CAD exchange rate was 1.7044.
Dominic Lee About Author: (474 Posts)With over ten years experience as an economist – including four years spent as a chief economist with a major currency broker – Dominic has acquired a wealth of knowledge which he uses to forecast market movements. Dominic now works as an independent business advisor and writes for several financial publications.

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