Tariff threats remain the key market driver, and despite the delay until April, Canada has not fully escaped this risk. Political uncertainty continues to pressure the CAD. Meanwhile, recent UK data reinforced the BoE’s gradual approach, supporting the GBP.

GBP: Short-term support

The baseline outlook for GBP remains bullish, supported by resilient labor market data, persistent inflationary pressures, and the BoE’s cautious, gradual approach to monetary policy. Unlike some of its peers, the UK economy appears less vulnerable to the immediate threat of US tariffs, further reinforcing the pound’s relative strength. Recent labor data bolsters this view, with the UK ILO Unemployment Rate holding steady at 4.4% in December, defying expectations for a slight rise to 4.5%. Employment change surged by 107k, while average weekly earnings (excluding bonuses) grew by 5.9% y/y, underscoring continued wage pressures. Although the claimant count rose by 22k in January, the previous month’s figure was revised to -15.1k, indicating an overall robust labor market.

On the inflation front, headline CPI accelerated to 3.0% y/y in January (from 2.5%), with core CPI climbing to 3.7% y/y (from 3.2%). Services inflation rose to 5.0%, slightly below the BoE’s 5.2% forecast, suggesting that while inflationary pressures persist, there are early signs of moderation. Despite this, Pantheon Macro highlighted that with wage growth hovering around 6% y/y and inflation still above 3%, the BoE is unlikely to accelerate the pace of rate cuts.

Looking ahead, the GBP calendar remains light, with no major domestic catalysts in the near term, leaving the pound largely driven by broader global risk sentiment. Key risks to this outlook include any unexpected dovish pivot by the BoE, weaker-than-anticipated activity data, or renewed fiscal tightening pressures ahead of the March 26 Budget review. Barring these developments, GBP is likely to sustain its strength against more fragile counterparts, supported by its relative insulation from trade risks and solid domestic fundamentals.

CAD: Tariffs threat

The baseline outlook for CAD remains bearish, primarily due to high exposure to US trade policy risks and increasing domestic political uncertainty. However, CAD has recently found some short-term support from the delay in US tariffs and a stronger-than-expected CPI report. The January CPI release showed headline inflation rising to 1.9% y/y from 1.8%, while core inflation ticked up to 2.7%, indicating persistent price pressures. Markets currently expect the BoC to remain on hold in March and April before delivering two rate cuts, bringing the terminal rate to 2.5% by mid-year. Despite this near-term strength, the recovery is likely to be short-lived, as external risks—particularly US trade policies—continue to pose significant downside risks. Potential tariffs on key Canadian industries (autos, semiconductors, and pharmaceuticals) could disrupt supply chains and weigh on growth, while uncertainty around steel and aluminum tariffs adds further pressure to the trade outlook.

On the domestic front, Canada’s political landscape is undergoing a major shift ahead of the 2025 federal election, with Mark Carney’s entry into the Liberal leadership race introducing fresh uncertainty to what was once considered a likely Conservative victory. A potential early election, should Carney secure leadership on March 9, could heighten political instability, weighing on investor sentiment toward CAD. Looking ahead, CAD’s economic calendar is relatively light, with no major market-moving events. As a result, external factors, particularly trade tensions and the domestic political risks, will remain the primary drivers for CAD, with external vulnerabilities expected to outweigh domestic data for the time being.

GBP/CAD 4H

Disclaimer

This material is provided for informational purposes only and does not constitute financial, investment, or other advice. The opinions expressed in this material are those of the author and do not necessarily reflect the views of Trive International. No opinion contained in this material constitutes a recommendation by Trive International or its author regarding any particular investment, transaction, or investment strategy. This material should not be relied upon in making any investment decision.

The information provided does not consider the individual investment objectives, financial situation, or needs of any specific investor. Investors should seek independent financial advice tailored to their individual circumstances before making any investment decisions. Trive International shall not be liable for any loss, damage, or injury arising directly or indirectly from the use of this information or from any action or decision taken as a result of using this material.

Trive International may or may not have a financial interest in the companies or securities mentioned. The value of investments may fluctuate, and investors may not get back the amount they originally invested. Past performance is not indicative of future results.

For more information about Trive International, please visit http://trive.com/int

Additional Information

Investing involves risk, including the potential loss of principal. Diversification and asset allocation strategies do not ensure a profit or guarantee against loss. The content in this material is subject to change without notice and may become outdated or inaccurate over time. Trive International does not undertake any obligation to update the information in this material.

By accessing this material, you acknowledge and agree to the terms of this disclaimer. If you do not agree with these terms, please refrain from using this information.