Published: March 11th, 2026
The British pound dropped sharply against the Canadian dollar at the start of the week, pressured by a jump in global energy prices that tends to favour commodity exporters.
The GBP/CAD exchange rate opened Monday's session lower, briefly touching 1.8023, its weakest level in nearly a year, before recovering modestly to around 1.8151. The pair closed out the previous week at 1.8189.
Currency analysts say the broader trend still points downward. Rising oil and gas prices, driven by geopolitical tensions in the Middle East, have given the loonie a boost and could push the exchange rate toward the psychologically important 1.80 level in the near term.
Energy markets remain volatile as traders weigh the risk that conflict involving Iran could disrupt oil flows through the Strait of Hormuz, the narrow shipping lane that carries a substantial share of the world's crude supply. Even partial disruption has been enough to drive prices sharply higher.
For currency markets, the implications are straightforward: higher energy prices tend to benefit exporters and penalise importers. In that divide, Canada sits on the favourable side, while Britain does not.
The pound's weakness against the Canadian dollar reflects more than short-term market nerves. It highlights a structural contrast between two economies positioned very differently in the global energy system.
Canada ranks among the world's largest petroleum producers. Industry data suggest that the energy sector accounts for roughly 14% of the country's economic output and remains one of its most significant sources of export revenue. When oil prices rise, the effect typically feeds through to stronger trade balances, increased foreign currency earnings and, ultimately, a firmer Canadian dollar.
Britain's situation is different. Once a major North Sea producer, the country has steadily reduced domestic oil and gas extraction while expanding renewable generation. The shift has clear environmental ambitions, but it also leaves the economy more exposed to swings in global energy prices.
For a country that already runs a sizable current-account deficit, higher oil and gas costs are typically negative for the currency. Imports become more expensive, while export earnings do little to offset the blow.
The result is a familiar pattern in foreign-exchange markets: when energy prices surge, currencies tied to resource exports tend to rise, while those belonging to large energy importers struggle.
Beyond commodity prices, Canada's domestic economic outlook is beginning to show tentative signs of improvement, which could further support the currency over time.
Recent survey data indicate that confidence among Canadian small businesses rebounded sharply at the start of February after a prolonged period of pessimism through much of 2025. A closely watched optimism index compiled by the Canadian Federation of Independent Business climbed to 64.8 on its long-term gauge, while its short-term measure rose to 61.2. Both readings sit comfortably above their historical averages.
Hiring intentions have also improved. Businesses reported plans to expand payrolls for a second consecutive month, with recruitment expectations outpacing layoff plans.
If the shift persists, it could eventually appear in official labour-market statistics and broader activity indicators. Stronger employment growth would reduce the likelihood of further monetary easing from the Bank of Canada, a development that would normally lend support to the national currency.
One of those risks lies south of the border. Currency strategists say persistent uncertainty around North American trade policy continues to weigh on sentiment toward the Canadian dollar.
The next scheduled review of the United States–Mexico–Canada ‘free trade’ Agreement is expected to begin around July. The agreement replaced the earlier North American Free Trade Agreement and forms the backbone of regional trade flows.
However, recent reports suggest that US policymakers are considering significant revisions to the deal, raising the possibility of renewed negotiations.
Officials have signalled that the upcoming review will not simply rubber-stamp the existing terms. That stance has unsettled investors, given the importance of the United States as Canada's dominant export market.
Research from Barclays argues that such geopolitical and trade frictions help explain why the Canadian dollar has lagged behind other commodity-linked currencies despite strong oil prices.
Strategists at HSBC echo that view, warning that uncertainty surrounding the trade agreement could trigger bouts of selling pressure in the months ahead.
Despite improving sentiment indicators, some analysts caution that Canada still faces deeper economic challenges that could limit the currency's long-term upside.
Research from payments firm Convera argues that the Canadian economy has struggled with weak productivity growth for years, a trend that has gradually widened the gap between Canadian and American living standards.
According to the firm's analysis, Canadian labour productivity remains roughly 70% of that in the United States. The disparity, it argues, reflects an extended period during which investment flowed disproportionately into domestic sectors, particularly real estate, rather than into export-driven industries.
Interestingly, the pound's weakness against the Canadian dollar contrasts with its performance against other major currencies. Sterling has strengthened modestly against both the Greenback and the euro in recent sessions, aided by a partial retreat in global oil prices and signs that geopolitical tensions may be easing.
Oil markets cooled after indications that military objectives in the conflict involving Iran may soon be completed and that shipping routes through the Gulf could reopen. Benchmark crude prices fell back toward $90 a barrel after briefly spiking above $110 earlier, suggesting that the geopolitical risk premium embedded in energy markets may be fading.
That shift has softened the US dollar and lifted risk sentiment more broadly. As a result, GBP/USD climbed to roughly 1.34, extending gains from the previous trading sessions.
The pound has also edged higher against the euro, trading around 1.15 and approaching a fourth consecutive daily rise. For now, however, sterling's broader fortunes remain tied to developments in energy markets. As long as oil prices stay elevated, currencies linked to commodity exports are likely to enjoy an advantage.
