GBP/CAD Faces Pressure as BoC Outlook Improves

Scotiabank’s key call is that the Canadian dollar has already absorbed a lot of bad news. The bank says CAD has staged a “clear recovery” since late June despite trade-policy uncertainty and a deteriorating U.S.-Canada relationship, including a U.S. ban on about $1 billion of Canadian imports. In other words, the currency is not acting like a market that is about to break down.

The macro case is straightforward: the next big move in CAD depends on the Bank of Canada, not just on risk appetite. Scotiabank expects the BoC to begin a hiking cycle by late this year and to deliver 75 basis points of tightening through next year. The bank points to the central bank’s decision to drop its line that the current policy rate “remains appropriate,” along with warnings that inflation risks have risen. If markets start pricing even part of that path, Canadian rate spreads should narrow in CAD’s favor.

Sterling does not have an obvious edge here either. UK money markets are still pricing a near-certain Bank of England hike in November and several more after that, but Scotiabank says the BoE may deliver less than the market expects. That creates a second potential leg of downside for GBP/CAD: weaker-than-priced UK tightening on one side, and a more hawkish BoC on the other.

For investors, that makes the current GBP/CAD strength look vulnerable to a classic spread trade unwind. It also lines up with Scotiabank’s broader valuation view that the Canadian dollar remains cheap versus rate differentials. The bank’s fair value estimate for USD/CAD sits at 1.4099 against a spot rate near 1.42, and it sees USD/CAD falling to 1.37 by year-end and 1.33 by the end of 2027. That implies GBP/CAD around 1.8769 by year-end and 1.8487 by the end of 2027, below where the pair is trading now.

The chart agrees with the macro. GBP/CAD has been grinding into a ceiling while the Canadian dollar has held up better than other commodity currencies and high-beta peers. That combination usually favors patience over chasing the move. The trade here is not to buy strength in sterling, but to fade it.

The bigger implication is that investors who have treated CAD as a perpetual underperformer may be missing an inflection point. If the BoC turns more hawkish while the BoE peaks sooner than expected, the cross-rate adjustment could be swift. For now, the asymmetric setup favors Canadian dollar resilience over another leg higher in the pound.