Watching Oil Prices For Next Move

The Pound to Canadian Dollar (GBP/CAD) exchange rate drifted lower as fragile UK economic sentiment contrasted with fluctuating commodity support for the Canadian Dollar.

DAILY RECAP:

Sterling traded cautiously as investors remained wary of the UK outlook.

Political developments generated periodic volatility, limiting confidence and discouraging sustained buying interest in the Pound.

Although immediate downside risks eased, markets continued to treat GBP defensively amid lingering uncertainty.

Economic data added to the cautious tone.

The UK economy expanded by only 0.1% in the fourth quarter of 2025, reinforcing expectations that the Bank of England could move toward policy easing once inflation pressures allow.

As a result, Sterling struggled to mount a meaningful recovery and largely moved sideways after early losses.

Meanwhile, the Canadian Dollar (CAD) derived intermittent support from movements in oil markets.

Firm crude prices early in the period strengthened the commodity-linked currency and helped it outperform Sterling.

However, fluctuating energy prices later prompted CAD to surrender some gains, leaving the pair rangebound toward the end of the week.

External factors also influenced sentiment.

Cross-border political developments and broader risk conditions created alternating periods of demand for both currencies, preventing a decisive trend from forming.

Near-Term GBP/CAD Forecast: Inflation and Labour Data Ahead

Attention now turns to upcoming UK labour market and inflation releases.

Signs of cooling wage growth or rising unemployment would reinforce expectations of Bank of England easing and could pressure Sterling.

Business activity surveys later in the week may also shape direction if they confirm slowing economic momentum.

For Canada, inflation data will be key.

A firmer CPI reading would support the Canadian Dollar, while softer figures could limit its strength and allow GBP/CAD to stabilise.

In the absence of a clear macroeconomic surprise, the pair may continue trading within recent ranges as investors weigh interest rate expectations and commodity price movements.