The Bank of Canada cut their Interest Rates as expected by 50-basis points to bring the bank rate below 4% in what their fourth consecutive cut as the central bank continues the battle to keep inflation closer to their target. Canada’s inflation in September hit 1.6% which is notably below their 2% target and therefore justified a more aggressive rate cut. The main contributing factor towards slow growth in prices was due to a drop in energy prices, but of course as we move through the winter energy prices will no doubt increase and therefore it wouldn’t be a surprise to see a slight rise within inflation at some point.
Off the back of this, The Bank of Canada expects GDP to have only grown by 1.5% in the third quarter, quite a way below their expectations of 2.8%. Also worryingly, unemployment has reached 6.4% due to the labour force growing at a faster pace than companies hiring, which is hitting the younger generation. Overall, the economy has grown by nearly 2% in the first half of this year and they expect further growth of 1.75% by the end of this year as it rebuilds from a poor end to last year.
Governor Tiff Macklem stated after the cut that further rate cuts will be dependent on future incoming data combined with their inflation assessment. It should be noted that even after the 50-basis point cut, the policy rate is still apparently 100 points higher than where the central bank ideally views rates, which could pave the way for a few more cuts over the coming months.
Overnight we’ve also seen Sterling move higher against both EUR & USD, after Bank of England Governor Andrew Bailey refused to commit to a faster pace of interest rate cuts. He mentioned yesterday that disinflation was taking place at a faster pace than what was initially thought and although that would generally lead to more aggressive decisions, Andrew Bailey suggested there was still some way to go before committing to rate cuts as September’s Services Inflation was still markedly higher than their target at 4.9%.
This should be reflected in Services PMI data due out later this morning in The UK, with October’s preliminary figures suggesting the services sector will have grown again in a similar fashion to September.
Moving into this afternoon, we have the weekly release of Initial Jobless Claims in The U.S. Current figures seem to suggest an increase of 1,000 more people out of work. However more concerning is November’s Job’s data due out on Friday 1st. This report is particularly crucial as it comes just 4 days prior to the US Election and with the two most recent hurricanes experienced in parts of The US, as well as a strike amongst Boeing workers which affected tens of thousands nationwide, it doesn’t bode that well and it wouldn’t be a shock to see some downward volatility for The US Dollar.
GBP/EUR 1.1984 GBP/USD 1.2947 GBP/AED 4.7562
GBP/AUD 1.9450 GBP/CHF 1.1208 GBP/CAD 1.7890
GBP/NZD 2.1474 EUR/USD 1.0792 GBP/ZAR 22.8870