CAD
With Canada at a political crossroads and damaging tariffs highly likely it is no wonder that USDCAD is trading at levels only seen twice in the last 10 years. There are no data releases of note expected this week, the Loonie will be at the mercy of developments elsewhere.
USD
With Trump’s inauguration looming large on the horizon, expectations of protectionist policies seen in the returning President’s first term have pushed the USD index, a gauge of the relative strength of the USD against its major trading pairs, to levels not seen since the pandemic. With Producer Price Index figures and Consumer Price Index updates today and tomorrow, the Fed will know the size of the task at hand. The central bank’s next step will be to carefully balance the current performance of the economy against the likely effect of tariffs. Our current base case is that the Federal Reserve will keep rates unchanged until the new administration’s policies are imbedded and their impact known.
EUR
The Euro’s precipitous fall against a basket of currencies since the end of September, stemming from a potent concoction of political uncertainty, troubling inflation and weak growth, is showing little sign of abating. A raft of central ECB speakers this week along with the minutes of their December meeting may provide markets with a clearer view of their targeted path to recovery.
GBP
Sterling started the week under continued pressure in morning trading yesterday. The strong employment data from last week in the US, coupled with the ongoing concern with developments in Gilt markets pushed GPBUSD and GBPEUR to the lowest levels traded since September 2023 and November 2024 respectively. As is common with significant currency movements, the afternoon session heralded reprieve for GBP moving 1% higher against the dollar and close to 0.5% against the Euro. Whilst the political and fiscal turbulence being attributed to Rachel Reeves does seem to have temporarily lifted our concern is that things will not remain calmer for Starmer meaning sterling will face another leg lower. Looking ahead, markets will turn their attention to tomorrow’s inflation print for any signs that the Bank of England will deviate from their likely interest rate cut in next week’s announcement.
This content was originally published by our partners at Monex Canada.