Pound to Canadian Dollar Forecast to Gain if Trade Tensions Rise
- Written by: Gary Howes
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The Canadian dollar is at risk of U.S. tariffs...
... to be sure, the U.S. isn't proposing any new tariffs on Canada, at least for now, but the Canadian dollar tends to track the U.S. dollar when tariffs are in the driving seat.
The 2025 playbook saw the dollar fall when trade tensions were ratcheted up by U.S. President Donald Trump, and the Canadian dollar tagged lower.
That playbook is open on Monday as traders react to weekend news that the U.S. will add a new import tariff of 10% on European and UK imports on February 01 unless they allow it to take Greenland off Denmark's hands.
The pound to Canadian dollar conversion (GBP/CAD) dropped to 1.8566 in initial Asian trade but has since recovered to 1.8620 as it tracks a recovery in GBP/USD.
Whether or not that recovery can extend, and carry GBP/CAD back to 1.8715, could well depend on how the new geopolitical tensions evolve from here.
Despite what are clearly negative headlines, markets are taking developments in their stride.
After all, a Supreme Court ruling over the legality of Trump's use of tariffs is imminent. Polymarket shows 'the money' sees a 70% chance Trump is defeated. If that happens, then what? If any tariff-related premium is unwound, the dollar surges and takes the Canadian dollar with it.
Keep in mind too the TACO trade. This emerged as the successor to Sell America in 2025: Trump Always Chickens Out.
The observation is that Trump starts with a maximalist position and then pulls back as some kind of deal emerges.
This meant traders could fade initial reactions. But if everyone is prepared for TACO, that initial reaction to headlines simply fails to materialise.
So, here we are, with some alarming headlines and markets that are essentially holding ground and awaiting more information.
That being said, there are risks to this complacency, though:
Trump appears determined to get Greenland, and recent events in Venezuela prove he is ready to act militarily in 'his' hemisphere. He's also clearly seeking a legacy, and expanding the American map delivers that.
We could be entering truly uncharted waters from a geopolitical perspective. So this could be a very news-driven week with numerous twists and turns.
