GBP/CAD rebound stalled around 1.64Scope to find support near 1.62 on dips 1.6217 to 1.6396 range possible aheadCanada & UK CPI figures the highlights UK job data & BoC survey also in focusImage © Adobe Stock

The Pound to Canadian Dollar exchange rate opened the new week with a retreat from the 1.64 handle and what may already have been some of its strongest levels for the period though it could be likely to find support near the round number of 1.62 in the event of a deeper setback for Sterling.

Sterling came under pressure from the Loonie in early European trade following a strong start in the Asia session but could see further losses if UK data emerges on the wrong side of expectations this week.

UK employment figures are first out on Tuesday but will be followed by inflation figures for December in the mid-week session and each could be enough to prompt financial markets to look again at their assumptions about the Bank of England (BoE) interest rate outlook with possible implications for Sterling.

"Last week had seen the conviction of a further 100bp hiking cycle from the Bank of England (BoE) start to soften. 95bp of tightening is now priced in by August this year," says Chris Turner, global head of markets & regional head of research for UK & CEE at ING.

"It is not clear that this week's data will add to those softer expectations - wages and inflation could remain high- but we do see those BoE tightening expectations coming under pressure over coming month," Turner writes in Monday market commentary.

Above: Pound to Canadian Dollar rate shown at hourly intervals. Click image for closer inspection.

This week's data comes in the wake of GDP figures out on Friday suggesting the UK economy has not deteriorated to the same extent or as fast as was envisaged by the BoE in its November forecasts and the implication is that it could now raise interest rates sooner and further than otherwise.

Tuesday's wage growth figures and whether or not UK inflation falls again on Wednesday are both likely to be important influences on market expectations for the February Bank Rate decision, expectations which have so far erred in favour of a 0.25% increase to 3.75%.

Sticky inflation or pick up in wage growth could be enough to put a floor under GBP/CAD this week but much will also depend on the contents of the latest Business Outlook Survey from the Bank of Canada (BoC) and on the market response to the latest Canadian inflation figures.

"Our bias is to hold off on new positions for now," says Bipan Rai, North American head of FX strategy at CIBC Capital Markets.

"We like downside in EUR/CAD and GBP/CAD over the coming weeks as well. The next events to watch for are the releases of the business outlook surveys on the 16th ahead of domestic CPI on the 17th," Rai adds.

Above: Financial model-derived estimates of probable trading ranges for selected currency pairs this week. Source Pound Sterling Live. If you are looking to protect or boost your international payment budget you could consider securing today's rate for use in the future, or set an order for your ideal rate when it is achieved, more information can be found here.

The final quarter's Business Outlook Survey will be released to the market on Thursday and investors are likely to scrutinise the details closely, particularly those relating to the labour market and inflation expectations, given the survey's influence over BoC thinking about the economy and monetary policy.

There is currently high uncertainty over the outlook for Canadian interest rates after the BoC warned in December that it would spend the time up until its January interest rate decision considering whether borrowing costs will need to be lifted further in order to return inflation to the 2% target.

"The Dec headline CPI data is expected to be soft—down 0.6% in the month for a 6.3% rise over the year (from 6.8%). But core prices are expected to remain a bit sticky and are expected to fall only very slightly from Nov," says Shaun Osborne, chief FX strategist at Scotiabank.

"Markets are still pricing in the risk of 19bps of BoC tightening at the end of the month, with firm data late last year and the blow out jobs data last week keeping rate hike expectations alive," he adds in Friday commentary.

Wednesday's Canadian inflation figures are followed on Friday by the release of retail sales data for November that economists expect to reveal declines in spending on many items, and any upside surprise would likely be positive for the Loonie while also potentially adding to GBP/CAD's burdens.

Above: Pound to Canadian Dollar rate at daily intervals with selected moving averages and Fibonacci retracements of November recovery indicating possible areas of technical support for Sterling. Click image for closer inspection. To optimise the timing of international payments you could consider setting a free FX rate alert here.