The GBP/CAD currency pair remains stable as markets assess Canada’s mixed employment report. At the moment, GBP/CAD is trading around 1.8636, close to one-month highs.
Statistics Canada reported an 8.2K rise in employment for December, surpassing expectations of a 5K decline, but down from November’s 53.6K gain. The unemployment rate increased to 6.8% from 6.5%, exceeding forecasts of 6.6%.
Wage Growth Trends
Wage growth showed signs of slowing, with average hourly wages increasing 3.7% year-on-year in December, down from 4.0%. The Bank of Canada is expected to keep interest rates steady through much of 2026, as the latest data complicates the outlook for a rate hike.
In the UK, focus shifts to upcoming economic releases, including labour-market data and the GDP report. The interest-rate differential between the Bank of Canada and the Bank of England continues to support the Pound.
The Canadian Dollar is also influenced by global oil supply concerns. Increased oversight of Venezuelan oil by Washington may affect oil prices, impacting the Canadian Dollar, given Canada’s role as a key energy exporter.
Looking back a year to January 2025, we recall the market digesting that mixed Canadian jobs report and expecting the Bank of Canada to hold rates steady. Contrary to those expectations, persistent inflation forced the BoC to hike twice during 2025, bringing the policy rate to its current 3.0%. This pivot from the market’s initial forecast is crucial for positioning in the weeks ahead.
Pound vs Canadian Dollar
That trend of a weakening labour market we saw in early 2025 continued throughout the year. Statistics Canada’s latest report from last week shows the unemployment rate has now drifted up to 7.2%, creating a difficult situation for the central bank. This ongoing economic softness limits the BoC’s ability to raise rates further, even as inflation remains just above its target range.
The interest rate differential that favored the Pound a year ago remains a key factor for GBP/CAD. With the Bank of England’s policy rate now at 3.5%, the 50-basis-point spread over the BoC continues to support carrying the Pound against the Canadian dollar. This fundamental backdrop suggests that holding long GBP/CAD positions remains an attractive strategy.
Concerns about oil oversupply that we noted in early 2025 have since eased. Stronger than expected global demand has pushed WTI crude prices back up to around $85 a barrel, a level not seen since late 2024. This provides a supportive undercurrent for the Loonie and may cap significant upside in the GBP/CAD pair.
Given these conflicting signals, traders should consider strategies that account for potential volatility. Options contracts, such as buying puts on GBP/CAD, can offer a hedge against a sudden rally in the Canadian dollar driven by oil prices. Alternatively, using call options can provide leveraged exposure to further upside in the pair if Canada’s economic weakness continues to weigh on its currency.
