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The Canadian Dollar is forecast to pressure the Pound.
The Pound to Canadian Dollar exchange rate (GBP/CAD) is at risk of further weakness in the coming week, as the Canadian Dollar benefits from rising oil prices.
Three weeks ago, we drew the purple line on the chart below in our Week Ahead Forecast, and it proved highly accurate. In fact, it continues to inform current price action, and we look to retain it for another week:
Above: GBP/CAD at daily intervals.
We can see the GBP/CAD is in a pullback from a longer-term rally that took it to a peak at 1.8694 in May, and as is often the case with GBP/CAD, these pullbacks can be deep and last for many weeks.
The fundamental narrative for the decline is the softening in UK economic data and the rebuilding of expectations for an August interest rate cut at the Bank of England.
This, coupled with rising oil prices, a positive for the Canadian Dollar, sees us retain a bearish expectation for GBP/CAD, expecting a test of 1.8350 at some point in the coming days.
Rising Middle East tensions appear to be providing GBP/CAD with some support, which has lifted the exchange rate from last week's low at 1.8350.
This is because the GBP tends to be better bid than its Canadian counterpart when geopolitical tensions are on the rise.
However, Canada is a major oil exporter, meaning the ongoing lift in oil prices stemming from the Middle East conflict is proving helpful to CAD and limiting GBP/CAD recovery potential. So on one hand, the Middle East tensions aren't good for sentiment, but on the other, the impact on oil prices is useful.
This means GBP/CAD upside is likely to be limited from here, particularly if tensions die down but oil is slow in retracing recent value gains.