– Fed rate cut of 25 bps fully priced in.
– BoE does as expected and cuts rates by 25 bps.
– US dollar trading with a bit of a bid ahead of Fed meeting
USDCAD: open 1.3885 overnight range 1.3871-1.3949 close 1.3941, WTI $71.08, Gold, $2666.62
The Canadian dollar is steady and opened nearly unchanged from where it opened yesterday, despite a fairly choppy overnight session. Many analysts believe the Canadian dollar is very vulnerable to weakness in a Trump Administration due to the impact of US tariffs on Canadian exports, especially because America is Canada’s largest and most important trading partner.
Canadian dollar gains are limited as CAD/US interest rate differentials widen in favour of the US. The 10-year CAD/US spread widened from -103.7 yesterday to 109.7 today.
It is FOMC day and almost all analysts expect a 25 bp rate cut to 4.75%. The Fed’s outlook will be what moves markets. Traders are looking for some insight as to how policymakers will respond to the risk of higher inflation due to Trump’s planned tax cut and tariff strategy.
Asian equity markets posted gains, with Japan’s Topix advancing by 1.00% and Australia’s ASX 200 rising by 0.33%. In Hong Kong, the Hang Seng index jumped 2.02% on optimism over potential Chinese government stimulus. European stocks are also in an upswing, with Germany’s DAX climbing 1.31% despite mixed economic data and political challenges. Meanwhile, S&P 500 futures show a modest increase of 0.13%.
EURUSD is slightly firmer inside a 1.0713-1.0772 range, pressured by weak German Industrial Production figures and lower export volumes. Additionally, the recent collapse of Germany’s coalition government hints at an early election, possibly in March 2025. Industrial production dropped by 2.5%, with broad-based declines, and ING economists are forecasting a recession in Germany this winter.
GBPUSD rose in a 1.2875-1.2948 range and is sitting at the top of that band following the Bank of England Monetary policy statement. The BoE cut rates by 25 bps as expected and noted the need for a gradual approach to rate reductions, keeping policy restrictive until inflation reliably returns to its 2.0% target.
USDJPY held steady within a 153.65-154.72 range, buoyed by a 4.45% yield on the US 10-year Treasury. Vice Finance Minister for International affairs Atsushi Mimura said that authorities may step in to counter “excessive” volatility. Some analysts suggest intervention could even include a rate increase.
AUDUSD rallied from 0.6564 to 0.6639 on expectations of further Chinese fiscal stimulus to counterbalance Trump’s proposed tariffs and on expectations for a Fed rate cut today. The gains erased all the losses that occurred after Trump won the election.
US weekly jobless claims are on tap and expected to rise by 5,000 to 221,000.