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The Canadian dollar fell to its lowest level against the U.S. dollar in almost three months in a surprise move by the Bank of Canada.
The central bank said Thursday that it expects inflation to average 2.4 per cent for the year through the end of the year, the lowest in two decades.
The drop in the Canadian dollar was driven by lower crude oil prices and a strong U.K. economic recovery.
But the move has a broader impact on the global economy, which is already struggling with low growth and a fragile financial system.
“The continued fall in the price of crude oil and a weaker U.N. climate deal will likely push interest rates higher, pushing the Canadian economy into recession,” wrote Michael Woodford, an economist at RBC Capital Markets.
The Bank of England is likely to cut interest rates to their lowest in nearly a decade, but the impact will be minimal, as it is the central bank that decides when to raise rates and sets the pace of monetary policy.
“While there are risks to our outlook, it is important to note that monetary policy is likely unlikely to rise above the level that is necessary to support the recovery in the near term,” the Bank said in a statement.
The Canadian currency fell to about 76 cents US, below its 76.66 US level, after the central Bank released a report that found a weak U.W. economic outlook was likely to lead to a prolonged period of weak inflation and a sharp decline in wages and salaries.
That means that the Canadian and U.G. economies will not be able to generate enough income to keep pace with growing consumer spending.
The currency has fallen more than half of its value since the Brexit vote, and some economists are worried that a strong economic recovery is now unlikely.
“A recovery is unlikely in the next six months or so, so a sharp drop in oil prices will have a more pronounced impact on economic activity than previously thought,” Woodford said.
“We believe the current downturn is temporary, but it will probably last into the next year.”
The Bank’s decision to cut rates is a blow to U.k.
Prime Minister Theresa May, who has been advocating for higher taxes on the wealthy to help keep the country afloat.
The decision comes at a time when May has been looking to push her economy forward, with plans to raise the minimum wage and invest billions in infrastructure.
May’s Conservative Party has been in power for seven years and has been able to borrow money through a series of bond auctions.
However, the party has struggled to build the kind of strong economic growth that it had hoped for in the Brexit referendum campaign, and it has been losing ground in opinion polls.
“It’s not just a U.UK.
Brexit issue,” said Robert Siegel, an economics professor at the University of British Columbia.
“If May loses this election, she has been very badly damaged.”
The central Bank’s move came after a report from the Bank’s economics arm, the Bank for International Settlements, said that inflation would slow to 2.2 per cent this year and 2.3 per cent in 2018, down from the previous two forecasts of 2.5 per cent and 3.0 per cent.
The report said the unemployment rate would drop to 7.9 per cent, from the current 8.5, and inflation would reach 1.5% this year, down slightly from 1.7 per cent a year earlier.
The U.A.E. was the first country to see inflation fall after a rate cut by the central banks of about 10 per cent was announced on Thursday.
The euro fell to $1.1245 from $1,1268.
The dollar index, which measures the greenback against a basket of six major currencies, fell 0.4 of a percent to 95.9 Australian cents US.
The pound fell 0