GBP/CAD Drops 0.30% Despite UK’s Upbeat Inflation

GBP/CAD is bearish on Wednesday, even though the UK released surprisingly upbeat inflation data.

Currently, the pair is trading at 1.7177, down 0.31% as of 10:30 AM UTC. The next support level for the pair is at 1.7160.

GBP/CAD: UK CPI Rose More than Expected

UK inflation unexpectedly increased to a six-month peak last month, driven by higher fuel prices and a drop in airfares. The Office for National Statistics (ONS) said that consumer prices rose at an annual pace of 1.8% in January following an increase of 1.3% in December. Analysts polled by Reuters expected a rate of 1.6%.

The ONS data also showed that house prices increased in December at the fastest annual rate in over a year, which adds to the signs of growing confidence after Prime Minister Boris Johnson secured a major victory in the December election.

Ruth Gregory, an economist at consultancy Capital Economics, commented:

“While CPI inflation rose for the first time in six months, the inflation figures were in line with the Bank of England’s expectations, so they are unlikely to move the dial on the outlook for interest rates.”

Mike Hardie of ONS explained the main reasons behind the positive inflation data:

“The rise in inflation is largely the result of higher prices at the pump and airfares falling by less than a year ago. In addition, gas and electricity prices were unchanged this month, but fell this time last year due to the introduction of the energy price cap.”

Core inflation, which doesn’t comprise fuel, energy, alcohol and tobacco, increased to 1.6% in January from 1.4% in December.

Initially, the sterling spiked following the ONS’ report, but then it tumbled back to its daily bottom as investors think the acceleration in inflation will likely be temporary. Consumer prices are expected to decline in the second quarter and maintain below the Bank of England’s 2% target for the coming years.

CAD Supported by Oil Prices

The pound couldn’t keep pace with the Loonie also because the latter is heavily supported by increasing oil prices. Both Brent and WTI crude brands have increased by 1.20% today as fears of the coronavirus outbreak have eased. The number of new cases in China has declined for a second consecutive day, falling below 2,000 cases per day for the first time in February.

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