GBP/CAD hovers above a 1 1/2-week trough, trade volumes thin

The GBP/CAD currency pair hovered above a 1 1/2-week low in light year-end trade, with investors weighing central bank policy outlook.

Market participants see limited scope for aggressive monetary policy easing by the Bank of England in 2026.

Earlier this month, the BoE reiterated that policy settings will follow a gradual downward trajectory rather than a sharp easing move.

The BoE reduced its benchmark interest rate by 25 basis points to 3.75% at its December meeting, while four MPC members favored keeping the rate unchanged at 4.00%.

The central bank said the scale of any additional rate reductions would depend on how the inflation outlook develops.

Inflation in the UK has remained above the BoE’s 2% target, even after moderating in recent months. Annual inflation has slowed to 3.2% in November from a 3.8% peak during the July–September period.

Meanwhile, the Bank of Canada now has limited room to ease policy after an aggressive rate-cutting cycle in 2024 and 2025.

During that period, the BoC delivered nine rate cuts, including two consecutive cuts in October and November 2024. As a result, Canadian interest rates are already near their lower bound.

The Bank of Canada kept its benchmark interest rate intact at 2.25% at its December policy meeting. The BoC Governing Council said it viewed the current policy rate about right to keep inflation near the 2% target.

The GBP/CAD currency pair was last down 0.26% on the day to trade at 1.8389.