The Pound-Canadian Dollar could extend its recovery if the Bank of Canada turns dovish, while escalating US-Canada trade tensions remain a key risk for the Loonie.
The Pound to Canadian Dollar (GBP/CAD) exchange rate rallied last week as markets were spooked by a sharp escalation in trade tensions between the US and Canada.
At the time of writing, the GBP/CAD exchange rate traded at CA$1.8809. Up around 0.2% from the start of last week’s session.
DAILY RECAP:
The Canadian dollar (CAD) faced significant selling pressure last week amid concerns over the potential economic repercussions of a US-Canada trade war.
Following the collapse of US-Canada trade talks at the end of the previous week, US President Donald Trump imposed a new 50% tariff on a range of Canadian goods, with Canadian Prime Minister Mark Carney announcing matching tariffs on US imports.
Given the importance of the US market to Canada’s economy, CAD investors were understandably unnerved by the threat of a trade war between the two countries.
The Canadian Dollar’s losses were further compounded by a pullback in oil prices, with Brent crude retreating to around $88 per barrel amid diplomatic efforts in the Middle East to reopen the Strait of Hormuz.
Closing out the week was the publication of Canada’s latest GDP figures, with a sharp rebound in growth in the second quarter helping the ‘Loonie’ to claw back some of its losses from earlier in the session.
The Pound (GBP) initially finding support last week after analysis suggested UK productivity could be recovering more strongly than official data indicates.
That initial boost proved difficult to maintain, however, with a thin domestic economic calendar leaving Sterling without a clear catalyst for movement,
Fresh concerns over household finances then began to weigh on the Pound in the second half of the week after it was confirmed that the UK’s energy price cap will rise to a three-year high from October.
Near-Term GBP/CAD Forecast: Dovish BoC to Weigh on the ‘Loonie’?
In addition to ongoing US-Canadian trade war developments, the Pound to Canadian Dollar (GBP/CAD) exchange rate will also be influenced by the Bank of Canada’s (BoC) latest interest rate decision this week.
The BoC is widely expected to leave interest rates on hold following its September, meeting, placing the focus for CAD investors on the bank’s forward guidance.
If the bank signals the potential need to adopt more accommodating monetary policy to help support the Canadian economy in its trade dispute, we are likely to see the ‘Loonie’ extend its losses.
Meanwhile, the UK economic calendar remains relatively light this week. August’s finalised services PMI could offer Sterling some support, but otherwise the Pound is likely to remain sensitive to broader market sentiment and currency trends.
Our currency coverage draws on live market data, official economic releases and published bank research.
