Inside the Currency Market: Mechanics, Valuation, and Strategies

British Pound/Canadian Dollar

Canadian interest rates are currently1.00 percent and Great Britain is 0.50 percent. This present equation is slightly misaligned if this was a trade to go long. Since the Canadian market is a yield seeker and the British pound is tied to gilt performance, the only method to go long this pair in the last two hours of London trading is if the FTSE is down and the Canadian stock market is down. Spreads would then compress and allow profits on the long, but this trade must be held only for the last two hours of London trade because the British pound configuration will change once London trading closes. The opposite effect also holds. If spreads widen, it's a clear short, particularly when the gilt is tied to performance ...