GBP/CAD Set for Resilient Year-end
- Written by: Gary Howes
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The pound to Canadian dollar exchange rate (GBP/CAD) holds a constructive near-term forecast.
GBP/CAD rises to 1.8537 at the time of writing Tuesday, a new two-week high.
The latest gains reflect Sterling's resilient setup as the year closes out, thanks in part to a paring back of expectations for future Bank of England interest rate cuts following last week's policy decision.
Although the Bank lowered interest rates by 25 basis points, there was no smoking gun to a follow-up cut in February, as many members on the Monetary Policy Committee remain wary of the UK's still-resilient inflation profile.
Above: UK rate cut bets have receded, helping GBP catch a bid into year-end.
As markets reflected on the Bank's latest guidance, they cooled expectations for further cuts, helping UK bond yields and the pound recover.
GBP reclaims lost ground not just against CAD, but against all other G10s.
GBP/CAD's advance takes it above the 21-day exponential moving average (EMA) at 1.8477, which signals a constructive near-term outlook.
That view is bolstered Tuesday by the pair's break above the 55-day EMA, signalling that the constructive setup is becoming more entrenched.
Typically, moves above the 55-day EMA would signal a breakout that would tempt more buyers in on expectations that the exchange rate is entering into a multi-week uptrend.
However, GBP/CAD has broken above the 55-day EMA once in late November and again in early December, with no follow-through buying. In short, they were false breaks.
So we're not attaching too much to today's price action as we think this pair remains relatively anchored in its current range.
To be sure, we wouldn't be surprised to see a recovery extend to 1.8650, the early-December high. But we would be wary that this is the top of the current trading range.
Weakness from here would take us back to the solid floor, that is the 1.840-.18326 area.
For now, however, we favour the upside.
