President Donald Trump discussed tariffs at a cabinet meeting held on Wednesday, February 26, 2025, in the Cabinet Room. Official White House Photo by Molly Riley.
The Pound is on the cusp of reaching its highest levels since 2018 against the Canadian Dollar amidst swirling tariff uncertainty; however, we think overbought conditions warrant a pullback.
The Pound-to-Canadian Dollar rose to 1.8231 on Wednesday, putting it just shy of the 1.8233 high reached on December 19, beyond here is the March 2018 high at 1.8381.
Markets are grappling with fresh trade uncertainty and unsettling reports that Peter Navarro, one of Donald Trump’s closest advisers, is pushing U.S. negotiators to discuss reworking the border with their Canadian counterparts.
"Navarro recommended revising the Canada-U.S. border, which is just crazy and dangerous," a source close to negotiations told The Telegraph.
It is reported Canada has now instructed its delegates to withdraw from negotiations with the U.S. until Jameson Greer and Howard Lutnick, two incoming members of Mr Trump’s cabinet, are confirmed by the senate.
The Telegraph says Ontario views Greer and Lutnick as being less extreme.
"The Canadians have told their people to hold off negotiating with the U.S. Government until Jameson Greer and Howard Lutnick are confirmed by the Senate and in post," a source told the newspaper.
Trump has repeatedly said Canada should become the 51st US state.
Canadian Prime Minister was recently caught on open mic warning that Trump’s sustained annexation calls may appear to be "a real thing" having initially shrugged off the proposition as a joke.
Navarro attracted headlines earlier this week having suggested expelling Canada from the Five Eyes intelligence-sharing network, the most important intelligence-sharing network in the world, suggesting a hard stance against Canada.
The headlines will generate significant uncertainty for Canadians who are already contending with trade uncertainty.
The latest GBPCAD advance follows new confirmation from President Donald Trump that he would be proceeding with tariffs on Canada and Mexico.
"I'm not stopping the tariffs," Trump said at a meeting of his cabinet.
He said the tariffs on Mexico and Canada would go into effect on April 02, versus a previous deadline of March 04.
Later in the day, a White House official said the deadline remains March 04 and that Trump had not yet decided whether to grant another extension.
Trump appears to be relaxed about the uncertainty his comments are creating, suggesting they are by design.
From a foreign exchange market perspective, CAD doesn't like the latest confirmation by Trump that he is intent on pursuing a 25% tariff on Canadian imports.
Above: GBPCAD rises to the cusp of new seven-year highs. The RSI in the lower panel is signalling overbought conditions.
However, most analysts we are following say the eventual outcome will be less severe than implied by worst-case scenarios and that any delay will be supportive of CAD.
"The comments from President Trump, if taken at face value, provide some comfort that tariff hikes are unlikely to be implemented as early as next week. A development that could help to ease downside risks for the Canadian dollar and Mexican peso in the week ahead," says Lee Hardman, Senior Currency Analyst at MUFG Bank Ltd.
On March 04, we will either get confirmation of the scope of the tariffs or whether the deadline is pushed back to April. Expect CAD to stay soft into this date amidst elevated anxieties.
Overbought
GBP/CAD's rally has extended for an impressive 12 successive days and is probably due to a pause.
It has reached overbought levels, with the Relative Strength Index (RSI) now at 70.26 (see lower panel in the chart).
A reading above 70 signals overbought and makes the RSI prone to a mean reversion lower.
This would manifest as consolidation in the spot market or a correction lower, meaning a breakout and rally to the 2018 highs might be postponed.
The charts also show there is fierce resistance around these levels, with previous rallies fading and then reversing on rallies above 1.8115. In fact, there have been no less than four rejections since October 2024 at this resistance point.
GBPCAD could be on borrowed time at these levels.