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GBP/CAD spot rate at time of writing: 1.7384Bank transfer rate (indicative guide): 1.6767-1.6897FX specialist providers (indicative guide): 1.7123-1.7262More information on FX specialist rates here The Pound-to-Canadian Dollar rate rallied strongly on Tuesday after Bank of England (BoE) Governor Andrew Bailey appeared to poor cold water over the idea of the UK adopting a negative interest rate policy, although upside for Sterling could be limited to nearby levels, analysts have suggested.

Pound Sterling was the best performing major currency after BoE Governor Bailey gave short-shrift to the idea that adopting negative interest rates could do much to support the economy, while Monetary Policy Committee member Ben Broadbent also said little to encourage expectations of further easing.

The BoE's ongoing assessment of subzero borrowing costs as a policy tool had been in heightened focus to open the new week when MPC member Sylvana Tenreyro reiterated earlier support for the idea on Monday.

Tenreyro had said that "it's not too late to use them now" and that Bank Rate could in theory be cut below -0.75%, although it's not obvious there's a majority to be found in favour of the policy on the nine-member rate setting committee.

"The OIS market’s lack of conviction in bumping up the timeline for negative UK interest rates was a bit of a warning shot after Tenreyro’s very obvious support of the policy," says Eric Bregar, head of FX strategy at Exchange Bank of Canada. "Bailey then added some fuel to the sterling fire, and justified the move higher, when he said there were “lots of issues” with negative interest rates."

Above: Pound-to-Canadian Dollar rate shown at hourly intervals alongside USD/CAD (blue).

"We think this morning’s positive momentum could see sterling strength continue a little further today, but we see it stalling at the 0.8920s in EURGBP and the 1.3620s in GBPUSD," Bregar adds.

The BoE's Bank Rate has been at 0.10% since March 2020 although pricing in the overnight-index-swap (OIS) market has this year indicated that investors expect borrowing costs to be cut to at least zero before the summer. Market expectations of BoE policy are among the 'dovish' in the G10 universe.

GBP/CAD rallied 0.70% in its largest one-day advance since mid-December on Tuesday but at levels just shy of 1.74 it was fast running out of road given expectations for the main Sterling exchange rate GBP/USD to stall at 1.3620.

"Five Fed speakers take to the mic today," Bregar says. "We think USDCAD has enough reasons to chop sideways for the moment."

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The Pound-to-Canadian Dollar rate would top out around 1.74 if GBP/USD stalled at 1.3620 and USD/CAD chopped sideways around 1.2770, given that GBP/CAD always closely reflects relative price action in the main Canadian and British exchange rates USD/CAD and GBP/USD.

This would mark the second time in as many weeks that Sterling has failed at 1.74 and could lend a further bearish appearance to longer-term daily and weekly interval charts, which has been flagged by analysts at Scotiabank.

However, if they're right about USD/CAD rising to 1.2850 or above this week then GBP/CAD might temporarily overshoot 1.74 to trade as high as 1.75. Much would depend however, on if GBP/USD is able to sustain Tuesday's lofty levels, or if retraces back toward 1.3550.

The latter scenario would call GBP/CAD's rally to a halt at 1.74.

"Longer run price action is tilting bearish after the late December reversal from the 1.7495/00 zone. Daily and weekly price signals reflect bearish “evening star” candle developments last month around the test of the December high. GBP losses below 1.72 could signal a return to the 1.67/1.68 range," says Juan Manuel Herrera, a strategist at Scotiabank. "We think price signals suggest [USDCAD] may be forming a base. A higher close on the week should confirm."

Above: Pound-to-Canadian Dollar rate shown at daily intervals alongside USD/CAD (blue).