Anna 
The GBP/CAD exchange rate surged to an eleven-week high, reaching CA$1.7220 on Tuesday, propelled by hawkish remarks from Bank of England (BOE) officials and anticipation of tax cuts. BoE Governor Andrew Bailey, in his testimony to the Treasury Select Committee, expressed concerns about the persistent risks of elevated inflation, while Monetary Policy Committee (MPC) member Catherine L. Mann foresaw ongoing wage and price pressures continuing into 2024.
Simultaneously, Canada reported a slight uptick of 0.1% in consumer prices for October. However, headline inflation unexpectedly dipped to 3.1%, with core inflation seeing a marginal decline to 2.7%. Despite a significant annual drop in gasoline prices by 7.8%, the core rate, excluding gasoline, held firm at 3.6%. Scotiabank analysts foresee a subdued reaction from the Canadian dollar but anticipate limited depreciation due to elevated core prices, supporting a relatively hawkish stance from the Bank of Canada.
In addition to economic indicators, the Canadian government outlined a fiscal update that earmarked C$15 billion for new rental housing construction loans over the next decade and a C$1-billion fund aimed at enhancing the availability of affordable housing.
Currency analysts are closely monitoring the potential repercussions of these developments. Simon Harvey from Monex Europe emphasized the BoE’s flexibility for future rate hikes to effectively manage inflation. Meanwhile, James Moberly from Goldman Sachs acknowledged expectations of conservative fiscal measures in the Autumn Statement but did not rule out the possibility of more substantial tax cuts in the upcoming Spring Budget.
With the trajectory of the Sterling contingent on potential shifts following Chancellor Hunt’s Autumn Statement and Bank of Canada Governor Tiff Macklem’s forthcoming address—potentially signaling an end to interest rate increases—market participants are preparing for heightened volatility in the GBP/CAD exchange rate.
