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GBP/CAD Heading for Four-Decade Low

GBP/CAD Heading for Four-Decade Low

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The GBP/CAD pair is on a path towards the lowest price since 2010. And beyond that, the 1985 low could be the next destination.

The British pound has lost considerable ground to the Canadian dollar this year. GBP has closed lower against the ‘Loonie’ every month in 2022. As a result, GBP/CAD is down 11.50% year-to-date. Furthermore, the pound show’s no sign of reversing the bad run of form. In fact, the chances are that Sterling could be in for more losses.

The driving force behind the Canadian dollar’s strength against the pound is obvious. While the UK is reliant on Russian gas, Canada has more than enough to go around. So much so, that the country is a net exporter of gas, as well as oil. As such, the sky-high price of gas is a net benefit. Whereas, in the UK it’s causing a cost-of-living crisis, which threatens to plunge the lowest earning households into poverty.

A slew of economic data released later today will shine a light on the Canadian dollar. First out of the gates is the Trade Balance data for July. Analysts forecast that exports outpaced imports by CAD 3.8 billion in the month, lower than the CAD 5.05b surplus in June. Nonetheless, should the data arrive close to expectations, it will highlight the gap between the Canadian and British economies. Unlike Canada, the rising cost of energy has seen the UK’s trade deficit widen this year.

Following the trade data, the Bank of Canada (BoC) will announce its interest rate decision. The BoC is likely to raise rates by 75 basis-points from 2.50% to 3.25%. Again, if the data is inline with expectations, the Canadian dollar should continue to perform well against the pound. In this event, GBP/CAD could find itself trading at historic lows.

British Pound to Canadian Dollar Forecast

The monthly chart highlights GBP/CAD’s horrendous performance this year, Notably, the decline has accelerated in the last few months as Britain’s energy crises deepens. Subsequently, the pair has blown through several key support levels. The next domino to fall could be a drop below the 2010 low at 1.4833. In that event, a slide to the 1985 low at 1.4559 is possible.

Considering the headwinds facing the UK, the outlook for GBP/CAD is broadly negative. However, the rate is looking incredibly stretched on the downside. For that reason, a reversal is likely at some stage. With that in mind, a monthly close above the 2012 low of 1.5247 opens the door for GBP/CAD strength.

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GBP/CAD Price Chart

Elliot Laybourne
Elliott is a former investment banker with a 20 year career in the city of London. During this time he held senior roles at ABN Amro, Societe Generale, Marex Financial and Natixis bank, specialising in commodity derivatives and options market-making. During this time, Elliott’s client list included Goldman Sachs, JP Morgan, Credit Suisse, Schroders Asset Management, and the Pennsylvania State Public School Employees Retirement System, amongst others. Today, he splits his time between Thailand and Dubai, from where he provides trading consultancy and business development services for family office and brokerage clientele.