The GBP/CAD rose to an eleven-week high of CA$1.7220 on Tuesday, following hawkish comments from Bank of England (BoE) officials and expectations of tax cuts. BoE Governor Andrew Bailey warned of the ongoing risks of high inflation during his testimony to the Treasury Select Committee, while Monetary Policy Committee (MPC) member Catherine L. Mann projected continued wage and price pressures through 2024.
On the same day, Canada reported a small 0.1% increase in consumer prices for October. However, headline inflation unexpectedly fell to 3.1%, while core inflation edged down to 2.7%. Despite a significant 7.8% annual decline in gasoline prices, the core rate excluding gasoline was 3.6%. In response to these figures, analysts at Scotiabank expect a muted reaction from the Canadian dollar, but limited depreciation as high core prices support a relatively hawkish stance from the Bank of Canada.
In addition to economic measures, the Canadian government unveiled a fiscal update that includes C$15 billion in new rental housing loans over the next decade and a C$1 billion fund aimed at increasing the availability of affordable housing.
Analysts are closely monitoring the potential impact of these developments on currency movements. Simon Harvey at Monex Europe noted that the BoE retains flexibility for future rate hikes in order to effectively manage inflation. Meanwhile, James Moberly of Goldman Sachs highlighted that conservative fiscal measures are expected in the Autumn Statement, but did not rule out larger tax cuts in the upcoming Spring Budget.
As the Pound’s trajectory remains subject to potential shifts following Chancellor Hunt’s Autumn Statement and Bank of Canada Governor Tiff Macklem’s speech – which could signal an end to interest rate hikes – market participants are bracing for further volatility in the GBP/CAD exchange rate.