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The Pound is prone to further short-term weakness against the Canadian Dollar in the near term.
Canada will release employment data later in the week, and a strong reading here could underpin the pullback that is underway in the Pound to Canadian Dollar exchange rate (GBP/CAD).
GBP/CAD peaked at 1.8146 on September 01 and has been falling since October 01, with further losses likely to take it to 1.77 if Canada reports job gains of more than 33K.
Should the data beat expectations, the market would lower the number of rate cuts expected to come from the Bank of Canada in the coming months, which is reflexively supportive of the CAD outlook.
The odds of a 50 basis point rate cut on October 23 at the BoC have already receded, alongside the odds of another 50bp move from the Federal Reserve in the wake of Friday's strong U.S. job report.
This brings us to another, perhaps more important, driver of GBP/CAD: its correlation with GBP/USD.
GBP/CAD has closely tracked the fortunes of GBP/USD for much of 2024, and its decline since the beginning of the month has been similar to that of GBP/USD.
Above: GBP/CAD (top) follows GBP/USD.
Should the GBP/USD extend lower, we would expect GBP/CAD to follow suit, regardless of what happens to Canadian data.
The Dollar is firming amidst renewed signs of economic outperformance in the U.S. economy, which should be reaffirmed by a Thursday's U.S. CPI inflation release. Markets see inflation as less of an important metric for the Federal Reserve, which appears more interested in labour market data.
This suggests the Dollar's October rebound won't be materially impacted by this week's data, which is broadly supportive of further GBP/USD & GBP/CAD downside.
For GBP/CAD, a break below the already-mentioned 1.77 in GBP/CAD would then open the door to a test of the 100-day moving average at 1.7650 where we would expect more technical support to be found.
Also note the RSI indicator is at 43 and is pointing lower, confirming momentum is to the downside in the near-term.