The pound fell against the Canadian dollar on Friday following reports of a worse-than-anticipated UK economic contraction in December. The GBP/CAD pair’s downtrend was also fueled by overwhelmingly optimistic Canadian employment change data for January. Overall, the GBP/CAD pair declined from a high of 1.6330 to a low of 1.6065 in the past 24 hours.
According to the data published by the ONS, the UK’s economy shrank 0.50% m-o-m in December 2022, following a 0.10% GDP growth in the previous month and worse than the 0.30% contraction anticipated by economists.
The services sector declined 0.80% m-o-m in December following a 0.20% rise in November. However, output in consumer-facing services decreased by 1.20% in December after recording a growth of 0.40% in November.
Also, in the quarter that ended December 2022, the economic activity remained almost unaltered following a 0.30% GDP contraction in the earlier quarter, and in line with the market’s expectations. The construction sector’s growth of 0.30% was nearly mitigated by a 0.20% contraction in the production sector.
Overall, the UK’s economy grew by 4.10% in 2022, after expanding by 7.60% in 2021.
The ONS also stated that construction output remained unaltered in December following a 0.50% contraction in November but surpassed forecasts of a 0.20% decline. While fresh work grew by 0.50% m-o-m in December, repair and maintenance work declined by 0.70% in the same period.
Also, construction output rose by 0.30%q-o-q in the December 2022 quarter. The increase was led by a 0.40% increase in fresh work and a 0.10% growth in maintenance.
Overall, the construction sector recorded a growth of 5.60% y-o-y in 2022. Total fresh orders in the construction sector fell by 1.80% in the December 2022 quarter. The annual rate of construction output price growth stood at 9.70% in the year ended December 2022.
The UK trade deficit widened to £7.2 billion in December 2022 from £2.3 billion in November. The reported figure was the largest monthly trade deficit since June 2022.
Imports grew by 2.20% m-o-m in December to £77.8 billion. The increase was led by a 6.10% rise in the import of machinery and transport equipment. Fuel imports surged 23.30%.
Total exports fell by 4.30% m-o-m in December to a five-month low of £70.6 billion. Exports of machinery and transport equipment declined by 6.20%. Fuel exports plunged 23.60%.
Services exports declined by 0.40% while services imports grew by 0.40%. Overall, the UK’s trade deficit widened to £84.7 billion in 2022 from £28 billion in 2021.
In a separate news release, the ONS stated that industrial production inched up 0.30% m-o-m in December following a 0.10% rise in November. The market was expecting a 0.20% contraction of industrial production for the reported period. The reported figure was 1.40% lower than pre-pandemic February 2020 levels.
The monthly rise in output was a result of growth in two of the four production sectors. Specifically, electricity and gas grew by 5.20% and water supply and sewerage rose by 0.70%. This was partly negated by a 4.60% drop in the mining and quarrying sector.
Manufacturing output stood unaltered in December following a 0.60% decline in November. Economists had anticipated a 0.20% contraction in December.
According to the data published by Statistics Canada, the country’s economy added 150,000 jobs in January following an addition of 104,000 jobs in the prior month, delighting the market, which was expecting only 15,000 jobs.
The unemployment rate was 5% in January, unaltered from December and a notch lower than forecasts of 5.1%. The previous low of 4.90% was recorded in June-July 2022.
The wholesale and retail trade sectors added 59,000 jobs. Likewise, health care and social assistance recorded 40,000 job additions. Also, educational services posted an increase of 18,000 jobs. During the same period, transportation and warehousing lost 17,000 jobs.
While the private sector added 115,000 jobs, the public sector added 32,000 jobs. There was no change in the number of self-employed people. Total hours worked increased by 0.80% in January and soared by 5.60% on a y-o-y basis. The count of unemployed people was 1 million, comparable to the figure recorded in the summer of 2022.
About 153,000 people joined Canada’s labor force in January, raising the participation rate to 65.70%.
The upbeat Canadian employment data and the worse-than-anticipated UK economic contraction in December are expected to keep the GBP/CAD pair slightly bearish in the near term.
The historical price chart indicates that the GBP/CAD is declining after facing resistance at 1.6330. The next support is anticipated only near 1.5910. Additionally, the currency pair is trading below its 50-day moving average while the stochastic indicator is in the bearish zone. Therefore, we anticipate the GBP/CAD pair to remain in a downtrend in the next few trading days.
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.
