GBP Gains As CAD Lags Despite Oil Rise

The Pound Canadian Dollar (GBP/CAD) exchange rate hit a one-month high last week, as markets bet on monetary policy divergence between the British and Canadian central banks.

WEEKLY RECAP:

The Pound (GBP) had a strong start to last week’s session, recouping its losses from the previous Friday as UK bond markets stabilised.

Sterling then wavered following mixed PMI results. The surveys showed that the Middle East crisis is already weighing on growth, but signs of higher price pressures boosted Bank of England (BoE) interest rate hike bets.

The UK consumer price index midweek reported that core inflation unexpectedly edged up in February, further reinforcing expectations of tighter BoE monetary policy.

However, the Pound’s gains from Tuesday onwards were limited by worries about the health of the UK economy.

This was exacerbated on Friday by a contraction in British retail sales growth in February, with GBP/CAD trimming its gains.

Meanwhile, the Canadian Dollar (CAD) faced headwinds early last week as US President Donald Trump postponed strikes on Iranian power plants and claimed that the US and Iran were having ‘productive conversations’ about ending the war.

This saw a slump in oil prices, which dragged on the crude-linked Canadian Dollar.

CAD was then muted as oil fluctuated, with Iran pushing back on Trump’s claims.

As markets grew doubtful of a peace deal, oil started to climb higher. However, CAD failed to capitalise on this amid expectations of central bank policy divergence.

A new forecast from the OECD saw Canadian inflation rising to 2.4% in 2026. Meanwhile UK inflation is set to hit 4%.

Bets that the Bank of Canada (BoC) will therefore take a less hawkish approach than the BoE this year saw the ‘Loonie’ struggle against Sterling, despite rising oil prices.

Near-Term GBP/CAD Forecast

Looking at the week ahead, the UK’s finalised fourth-quarter GDP is the only impactful British data release due out. Confirmation that the UK economy grew by just 0.1% in the last three months of 2025 could weigh on the Pound on Tuesday.

Canada will also publish its latest GDP figures. However, a meagre 0.1% growth month-on-month in February may provide CAD with very little impetus.

Canada’s March manufacturing PMI could dent the ‘Loonie’ on Wednesday, with City economists expecting to see a contraction in factory activity.

Meanwhile, the ongoing Middle East crisis and its impact on energy markets may continue to influence GBP/CAD. Rising oil prices could support the Canadian Dollar, while any signs of de-escalation could pull crude prices lower and weigh on the ‘Loonie’.