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The Pound can strengthen a little further against the Canadian Dollar.
The Pound to Canadian Dollar exchange rate (GBP/USD) could rise a little further from here, but gains are likely to be limited and a fall back to 1.83 is possible in the coming weeks.
Our latest Week Ahead Forecast is sticking with the sentiment drawn on the daily chart in last week's edition, which showed scope for a near-term rally ahead of a resumption lower as the July selloff extends:
The prediction proved correct, but we would be minded to push an expectation for the short-term rebound out a little further, perhaps for the duration of this week, ahead of that return lower.
From a GBP perspective, there is much 'bad news' already baked into the GBP/CAD price: the economy has slowed and the public finances are in a poor condition, with further tax rises looming in the autumn. Tax hikes will likely stave off a financial crisis, but they will only squeeze the life out of the economy, lowering its growth potential and delaying the inevitable reckoning that the UK faces.
But for GBP/CAD, it could be that the CAD is actually the more important component in the exchange rate.
This is because the pair is more or less tracking what the GBP/USD is doing: the GBP/CAD decline in July has tracked the broader GBP/USD decline, which tracks the bigger USD recovery over the course of the month. This is shown in the chart above (GBP/USD in lower panel).
Because the CAD and USD are trading as a North American bloc on the crosses, GBP/CAD is proving to be something of a USD story, and further USD strength can pressure GBP/CAD lower.
With this in mind, further tariff headlines are expected as the U.S. is set to announce new accords ahead of President Donald Trump's August 01 deadline. With some, like the EU, potentially missing the deadline, there is scope for some FX market volatility.
If the USD slumps on bad news, then GBP/CAD would be lifted.
However, USD is proving increasingly insensitive to tariff headlines, and we think an improving sentiment towards the U.S. and its high-yielding markets can help the currency recoup a portion of its 2025 losses.
If that is the case, GBP/CAD can trend lower, putting 1.83 in focus.
Taking a step back and looking at the remainder of the year, current USD strength can be considered a counter-trend consolidation, meaning the bigger trend of weakness is anticipated to reboot at some point.
"The trade-weighted US dollar has depreciated by 7% YTD and our FX strategists expect a further 4% weakening through year-end," says David J. Kostin, a strategist at Goldman Sachs.
If this is the case, then the GBP/CAD's recent weakness should be read as a multi-week consolidation ahead of the next leg higher later in the year.