CAD
The Canadian Dollar (CAD) has been under pressure recently following last weeks decision by the Bank of Canada (BoC) to ease its monetary policy aggressively. The BoC slashed its borrowing rates by 50 bps to 3.25% last week, as expected, but guided a more gradual easing approach as policy rates have come down significantly. BoC Governor Tiff Macklem warned that US President-elect Donald Trump’s tariffs on their exports will have a significant impact on the economy.
The commodity-linked CAD may receive upward support from crude Oil prices due to the likelihood of tighter supplies driven by the implementation of additional US sanctions on major producers Russia and Iran. West Texas Intermediate (WTI) Oil price trades around $70.50 per barrel at the time of writing.
USD
USD has started the week on a softer footing during the Asian session on Monday, which could be attributed to indifferent US Treasury yields ahead of the Federal Reserve’s (Fed) interest rate decision on Wednesday.
The Fed is widely expected to announce a 25 basis point rate cut in its final monetary policy meeting of 2024. Market analysts predict that the US central bank will cut rates while preparing the market for a pause, given the robust US economy and inflation stalling above 2%. According to the CME FedWatch tool, markets are now almost fully pricing in a 25 basis point cut at the Fed’s December meeting.
Chair Jerome Powell’s press conference and Dot Plots will be closely followed. Earlier this month, Powell maintained a watchful tone, stating, “We can afford to be a little more cautious as we try to find neutral.”
EUR
The Euro gained support after President Emmanuel Macron appointed centrist ally François Bayrou as France’s Prime Minister, raising hopes for political stability. Macron had pledged to quickly select a new candidate for the role after Michel Barnier was forced to resign following a confidence vote in Parliament.
On Friday, European Central Bank (ECB) Governing Council member Robert Holzmann said that cutting interest rates solely to stimulate the economy would be a mistake. According to Holzmann, the ECB’s primary responsibility is to ensure price stability, not to fuel economic growth. “Lowering rates now to boost the economy would contradict our current stance,” he said, as reported by Bloomberg.
GBP
GBP has started the week off on positive territory against USD and is flat versus EUR.
Meanwhile, the Bank of England (BoE) is expected to maintain the status quo and leave interest rates unchanged during Thursday’s announcement. Moreover, the BoE has stressed it is taking a gradual approach to cutting interest rates amid rising inflation expectations. Along with other forecasting bodies, the BoE expects that inflation will rise next year in the wake of UK finance minister Rachel Reeves’ big-spending budget. That said, BoE Governor Andrew Bailey’s dovish outlook, signalling four interest rate cuts in 2025, seems somewhat contradictory to this view.
This content was originally published by our partners at Monex Canada.