Pound-to-Canadian Dollar Five-Day Forecast: GBP/CAD Firms As Oil Prices Soften

The Pound to Canadian Dollar (GBP/CAD) exchange rate advanced strongly last week as falling oil prices and softer Canadian inflation weighed on the ‘Loonie’, while easing political tensions in the UK helped underpin Sterling.

DAILY RECAP:

The Canadian Dollar (CAD) struggled for support through much of last week as lower oil prices reduced demand for the commodity-linked currency.

Brent crude retreated from above $110 per barrel to near $102 as fears of major supply disruption eased and investors grew increasingly optimistic that diplomatic efforts between the US and Iran could prevent a broader escalation in the Middle East.

The decline in oil prices removed one of the Canadian Dollar’s key sources of support.

Additional pressure came from Canada’s latest inflation figures.

Consumer price growth rose less than expected, prompting investors to trim expectations that the Bank of Canada may need to resume tightening monetary policy in the near future.

The softer inflation backdrop left the ‘Loonie’ vulnerable through the middle of the week.

CAD managed to recover some ground towards the weekend after Canadian retail sales figures exceeded expectations, offering reassurance that domestic demand remains relatively resilient despite higher borrowing costs.

Meanwhile, the Pound (GBP) delivered a solid performance despite a disappointing run of UK economic releases.

Employment figures showed rising unemployment and slower wage growth, inflation cooled more rapidly than forecast, while PMI surveys revealed an unexpected contraction in the UK services sector.

Retail sales data also disappointed, reinforcing concerns over the strength of consumer spending.

Despite the weaker economic backdrop, Sterling found support as fears surrounding Labour Party leadership instability eased.

Prime Minister Keir Starmer avoided an immediate leadership challenge, while comments from Andy Burnham supporting existing fiscal rules helped calm investor concerns regarding the UK’s fiscal outlook.

The resulting retreat in gilt yields from multi-decade highs helped restore confidence in UK assets and provided a supportive backdrop for the Pound throughout the week.

GBP/CAD Forecast: Canadian GDP Figures in Focus

Canada’s latest GDP figures are likely to be the main driver of GBP/CAD movement this week.

While first-quarter growth is expected to return to positive territory, economists forecast only a modest 0.1% expansion.

At the same time, monthly GDP data for April is expected to show a slight contraction, highlighting ongoing challenges facing the Canadian economy.

A weaker-than-expected reading could reinforce expectations that the Bank of Canada will remain cautious, potentially weighing on the Canadian Dollar.

For Sterling, the domestic economic calendar remains relatively quiet.

As a result, investors are likely to continue monitoring political developments and movements in UK bond markets.

If recent improvements in market confidence continue and gilt yields remain stable, the Pound may be able to extend its recovery despite lingering concerns over the broader economic outlook.