GBP/CAD Exchange Rate Dips as Canadian Jobs Data Outshines UK GDP Growth

Canada's employment increased by 90,400 in April, exceeding forecasts, while the UK recorded 0.6% GDP growth in the first quarter, surpassing expectations. The strong Canadian jobs data led to a weaker Pound against the Canadian dollar, with the GBP/CAD exchange rate dipping to 10-day lows.

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GBP/CAD Exchange Rate Dips as Canadian Jobs Data Outshines UK GDP Growth

GBP/CAD Exchange Rate Dips as Canadian Jobs Data Outshines UK GDP Growth

The Pound to Canadian dollar (GBP/CAD) exchange rate dips to 10-day lows, just above 1.7080, after the release of Canadian jobs data and UK GDP growth data on Friday. The Canadian dollar strengthened following better-than-expected employment figures, while the Pound failed to gain support from the UK's stronger-than-anticipated economic growth.

Why this matters: The exchange rate fluctuations have significant implications for international trade and investment, affecting businesses and individuals with cross-border transactions. The central banks' decisions on interest rates, influenced by these economic indicators, can have far-reaching consequences for the overall economy and financial markets.

Canada's employment increased by 90,400 in April, significantly exceeding consensus forecasts of 21,000. Full-time jobs rose by 40,000, while part-time jobs increased by 50,000. The unemployment rate remained at 6.1%, contrary to expectations of a small increase to 6.2%. Average hourly earnings grew 4.8% year-over-year, slightly above forecasts of 4.7%. CIBC economist Andrew Grantham commented, "Overall, April's labor force data were certainly better than expected, although the underlying trend remains one of loosening conditions with the unemployment rate still higher than it was at the start of the year and wage pressures beginning to ease."

Meanwhile, the UK recorded 0.6% GDP growth in the first quarter, surpassing consensus forecasts of 0.4%. The growth figure ends the shallow recession the UK entered in the second half of 2023. On a monthly basis, the economy grew by 0.4% in March, faster than the 0.1% growth forecast by economists. Despite this positive news, the UK's economy remains one of the slowest to recover from the effects of the coronavirus pandemic, with the economy only 1.7% bigger than its level in late 2019.

Bank of England (BoE) chief economist Pill stated, "Focussing just on the next BoE meeting is a little ill-advised" and expressed concern about after 2-3 years. He also noted that persistent parts of inflation are falling. Markets priced in a 50% chance of a June rate cut in Canada, down from 60% ahead of the data. ING's base case is that the Bank of Canada will cut rates in June, but strong data could trigger a change of mind.

Markets still consider that the BoE is on track for a cut in interest rates by August, with at least a 50% chance of a June move. MUFG senior economist Henry Cook commented, "Today's figures may give the BoE some pause for thought, but the focus will remain on key upcoming data on inflation and wage growth." He added, "Provided that these data points move in the right direction, today's good news on economic activity in isolation is unlikely to derail initial monetary easing."

The GBP/CAD exchange rate dipped to 10-day lows following the release of the Canadian jobs data and the UK's GDP growth figures. The strong Canadian employment numbers overshadowed the UK's economic expansion, leading to a weaker Pound against the Canadian dollar. As central banks continue to assess economic conditions and inflationary pressures, upcoming data on inflation and wage growth will play a crucial role in determining the future path of monetary policy and exchange rates.

Key Takeaways

  • GBP/CAD exchange rate dips to 10-day lows, just above 1.7080.
  • Canada's employment increases by 90,400 in April, exceeding forecasts.
  • UK records 0.6% GDP growth in Q1, surpassing consensus forecasts.
  • Markets price in 50% chance of June rate cut in Canada, 50% in UK.
  • Upcoming inflation and wage growth data to influence monetary policy.