Pound Strengthens Against Canadian Dollar, Scotiabank Foresees Extended Uptrend

November 25, 2023
Pound Strengthens Against Canadian Dollar, Scotiabank Foresees Extended Uptrend November 25, 2023 Lennox Hamilton

The Pound to Canadian Dollar (GBPCAD) has firmly established itself above the 1.71 area, and according to a recent analysis by Scotiabank, the upward momentum is likely to persist. Scotiabank’s foreign exchange strategy team underscores the resilience of the GBPCAD exchange rate’s bull trend channel, supported by positively aligned short-, medium–, and long-term DMI oscillators.

Scotiabank’s Chief FX Strategist, Shaun Osborne, notes the solidity in price action, suggesting a potential full retracement of the GBP’s earlier decline from the 1.73 area. Despite the robust performance, Osborne acknowledges some potential cautionary signals from oscillator studies, particularly concerning the possibility of an overextended status. These concerns are somewhat corroborated by the daily DMI and a weekly slow stochastic signal that doesn’t fully confirm the GBP’s ascent to new highs. However, Osborne emphasizes that such concerns become more relevant with clear signs of weakness in price action, which is not the current scenario.

Factors Influencing GBP Performance

The British Pound’s recent strength against the Canadian Dollar and other major currencies followed positive outcomes in the UK’s PMI survey for November. The services PMI surpassed expectations by rising from 49.5 to 50.5, marking a return to growth for the UK’s largest sector. This unexpected improvement in the monthly data series contributed to the Pound’s upward momentum.

Meanwhile, the Canadian Dollar faced headwinds due to disappointing economic readings and a persistent decline in global oil prices, a key driver of its value. Bipan Rai, Head of North America FX Strategy at CIBC Bank, suggests that the CAD’s recent movements reflect the sluggish economic activity and underline concerns about the current restrictive monetary policy settings. The market is increasingly attentive to idiosyncratic risks in Canada, including high household debt and a substantial volume of mortgages requiring refinancing in the coming years.

Conclusion: Scotiabank Favors Extended Uptrend

Scotiabank’s analysis points to a favorable outlook for the GBPCAD exchange rate, emphasizing the continued strength of the bull trend channel. While acknowledging potential signals of an overextended status, the overall assessment suggests a resilient GBP and a trajectory poised for further advancement against the Canadian Dollar. The GBP’s positive response to economic data contrasts with challenges faced by the Canadian Dollar, reinforcing Scotiabank’s forecast of an extended uptrend for GBPCAD.

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