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The Canadian Dollar will relinquish some of its recent gains against the Pound.
The Pound to Canadian Dollar exchange rate (GBP/CAD) is attempting to recover the significant 1.20% loss it experienced last Wednesday, when fears about the UK's financial outlook flared up again.
A UK government decision to abandon much-needed welfare reforms shook market confidence in the government's ability to bring its finances under control, which was exacerbated by the sight of the Chancellor of the Exchequer crying in Parliament.
Fast-forward to Monday, and Chancellor Rachel Reeves, who administers the country's financial policies, is confirmed safe in her job and the Pound is recovering somewhat.
To be sure, the problem has not gone away, but the reprieve means the Pound can edge higher against the Canadian Dollar in the coming days, and we forecast gains to 1.86 and then 1.8680, which is a notable technical resistance area.
The Canadian Dollar is under a little pressure at the start of the week owing to the dour sentiment that pervades global markets with everyone fretting about trade tariffs once again as the White House starts sending out letters to trading partners, telling them of the tariff levels that have been decided.
The finality that this offers should be good for sentiment, which can ultimately boost the Canadian Dollar at the expense of the Pound.
However, Trump clearly won't let the issue lie, as he has threatened an additional 10% tariff on countries that are associated with the China-led BRICS community.
There's a BRICS meeting due in Brazil this week, but Trump says the grouping is designed to pursue "anti-American" interests, meaning tariffs are called for.
In isolation, it's not a story that should be remarkable to most G10 currencies. However, it sends an important signal: Trump will continue to wield tariffs as a weapon, meaning the issue won't die down during his term.
This stokes enough anxiety to keep the likes of CAD on the back foot.
"Weaker risk sentiment is a headwind for the CAD," says Shaun Osborne, Chief FX Strategist at Scotiabank.
However, the analyst notes that U.S./Canada trade talks are progressing; "as far as we know, towards an agreement later this month."
"So, presumably, Canada will not be one of the countries getting a letter from President Trump. Finance Minister Champagne said he believes Canada is in a position to work out a better deal than other countries because of the scale of the US/Canada trade relationship," he explains.
A becalmed Canada-U.S. trade setting would certainly bolster CAD, yet the salvo fired at the BRICS countries means Canada can't rest easy on any deal that is inked.
Turning to the calendar, the highlight of the coming week is the Canadian labour market report, where the consensus looks for 3K jobs to have been lost in June, while the unemployment rate is anticipated to remain at 7.1%.
Should the figure be met, then there's little in it for CAD exchange rates. However, a bigger miss would open the door wide open to another Bank of Canada rate cut, weighing on the currency.
Likewise, an upside beat would be supportive of CAD as it lowers the odds of imminent rate cuts.