Yesterday, despite the revelation of higher-than-expected May inflation figures, the pound declined against the Canadian dollar. The market currently anticipates that the BoE will increase interest rates at its upcoming policy meeting. Market players increased their bets on the Canadian dollar as a result of the better-than-expected comeback in retail sales in Canada in April. Over the course of the last day, the GBP/CAD pair fell from a high of 1.6944 to a low of 1.6782.
According to the data published by the UK’s Office for National Statistics, the country’s consumer price inflation (CPI) was 8.70% in May 2023, unchanged from the previous month, but higher than economists’ forecasts of 8.40%. The reported figure reflects a 13-month low but is considerably higher than the Bank of England’s targeted level of 2%.
The goods CPI (annual) eased to 9.70% in May from 10% in the previous month. However, the services CPI inched up to 7.40%, from 6.90%.
The inflation level is expected to put pressure on the central bank to raise interest rates. The increase was led by a 31.40% jump in air travel costs. Recreational and cultural goods and services posted a 6.70% increase. Also, second-hand cars recorded a growth of 3.90%. On the contrary, fuel costs fell by 13.10%.
Excluding volatile goods (energy, food, alcohol, and tobacco), the UK’s core inflation (annual) increased to 7.10% in May 2023, from 6.80% in the previous month. Economists did not anticipate any change in core inflation. The reported figure reflects the highest level since March 1992.
On a m-o-m basis, the UK’s inflation inched up 0.70% in May.
The ONS reported that, contrary to expectations of a 0.50% fall, producer input prices in the UK fell by 1.50% m-o-m in May after rising by 0.10% the month before.
On a y-o-y basis, the country’s producer input prices rose by 0.50% in May 2023.
The UK’s PPI output fell by 0.50% m-o-m in May, following a decline of 0.20% in April and worse than the 0.10% decrease anticipated by the market.
On a y-o-y basis, producer output prices jumped 2.90% in May 2023.
According to Statistics Canada, the country’s retail sales grew by 1.10% m-o-m in April to C$65.90 billion, following a decline of 1.50% in the previous month and greater than forecasts of a 0.40% growth.
Excluding gasoline stations and fuel vendors and motor vehicle and parts dealers, core retail sales grew by 1.30% m-o-m in April, following a decline of 0.40% in the previous month, and surpassed forecasts of a 0.50% increase. The reported figure reflects the fifth successive monthly increase.
The rebound was led by a 3.30% rise at general merchandise retailers. Food and beverage retailers posted a growth rate of 1.50%. Also, motor vehicle and parts dealers recorded an increase of 0.5%. Similarly, gasoline stations reported an increase of 0.30%. In volume terms, sales at gasoline stations and fuel vendors fell by 1.50%. In spite of this, retail sales (in volume terms) rose by 0.30% in April.
The GBP/CAD pair is anticipated to remain range-bound in the near term due to the strong economic data coming out of both nations.
The historical price chart indicates that the GBP/CAD pair is trading near its major support at 1.6790. The stochastic indicator is in the oversold region. Therefore, we anticipate the currency pair to rebound in the days ahead. The next major resistance is anticipated only near 1.6980.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
