The British Pound has demonstrated notable strength against the Swiss Franc, while its performance against the Canadian Dollar has weakened. At the time of writing, GBP/CAD is trading a little over 1.8540 – leaving it about 0.22% lower on the day. This change comes as transportation economic indicators are changing. First, their language suggests a shift toward a more dovish stance from the Bank of England (BoE).
According to the latest statistics, UK inflation as measured by the Consumer Price Index (CPI) jumped 0.4% over the last month. This 0.33-percentage-point increase demonstrates a small uptick in inflation. This number comes on the heels of a 0.2% drop measured in November. Annual CPI rate has been increasing to 3.4%. This was above the 3.3% that the market had expected and up from 3.2% last month.
Core inflation held firm at 3.2%, indicating strong underlying inflation dynamics even with volatility in the top level inflation number. The Industrial Product Price Index (IPPI) was another indicator showing a toxic trend in December. It was a surprise drop, coming in 0.6% month-over-month, a far cry from the expected 0.3% increase. Further, PPI output prices were unchanged on the month, causing the annual rate to stay at 3.4%.
Each one of these economic indicators would have normally set off profound shifts in market expectations. Consequently, the Bank of England’s monetary policy stance should be vigorously defended and supported. The swaps curve indicates more than an 80% probability of future monetary easings from the Bank of England. These cuts might amount to 50 basis points over the next twelve months. Underlying this sentiment is a growing concern about the underlying inflationary pressures that don’t require additional monetary policy tightening.
The Canadian economic calendar looks as sparse as they come. Yet only often not even third tier data is available, and this provides scant planning direction for the Canadian economy. Given the ongoing volatility surrounding these developments, traders and analysts alike are watching closely as they seek to profit from movements on the GBP/CAD currency pair.
This is indicative of a larger trend of overall investor confidence, despite its recent challenges withstanding the strength of the Canadian Dollar. This lack of divergence in performance speaks to the prevailing economic conditions and expectations for future monetary policy in the two economies.