Currency - GBP / Canadian Dollar

What a week it has been on the markets, things kicked off with the US ratings downgrade which set the pessimistic tone for the week. This led to wild stock market fluctuations, with the worlds’ leading indices moving 4-5% on a daily basis. This volatility in stock markets has fed into the wider financial system including the currency markets and meant that the data releases for the week have largely been ignored. Canadian housing starts posted a stronger than expected increase to 205k (VS an expectation of 195k) on the year. The Canadian Trade Deficit actually widened more than expected from CA$1 Billion to CA$1.6 Billion for the month of June. Mervyn King did his level best to add to the negative sentiment in the market, when the Bank of England released its Quarterly inflation report. The bank revised down its growth forecast for next year to 1.4% and committed to keeping UK rates at historically low levels for the foreseeable future.
The commodity basket of currencies (of which the Canadian Dollar is one), have weakened as risk has been taken off the table. Invariably these sentiment driven moves are exceptionally volatile and short lived in nature often ending up below where we started within a couple of weeks (think the collapse of Lehman brothers, Greece & Ireland’s first bail-out last summer, Japanese Tsunami for previous examples of this type of move). To put this in context, we were trading in the 1.525 region at the end of July and hit a high of 1.635 earlier this week (so approximately a 7.5% move over the last 2 weeks or so).
Next week see’s the release of several key pieces of data from the UK and Canada, including consumer price inflation data (Tues & Fri respectively), UK unemployment and Canadian foreign investment flows (Wednesday). Wednesday also see’s the release of the BOE minutes from their last meeting, whilst they’re very unlikely to have discussed a rate rise serious discussions about further QE may have taken place and will be looked for by the market.