CAD
USDCAD extended its recent strength during Asian trading hours on Monday. The potential US trade tariffs has recently dragged CAD lower against USD, its biggest trading partner. However, the optimism around a likely change in Canadian government and a rise in crude oil prices might cap the downside for CAD.
On Sunday, Canadian Prime Minister Justin Trudeau said that the government isn’t looking for a trade war with the new Trump administration but will have to retaliate if the US puts tariffs on Canadian products. On Friday, the Canadian economy added just 25,000 jobs in December against 50,500 in November and the Unemployment Rate ticked higher, coming in at 6.9% following the previous figure of 6.8%.
USD
USD has picked up where it left off last week strengthening further following Friday’s upbeat US employment data for December, which is likely to support the US Federal Reserve’s (Fed) stance to keep interest rates steady in January. The US job growth unexpectedly rose in December while the unemployment rate fell to 4.1%, supporting the US dollar. Non-farm payrolls significantly exceeded market expectations of 160,000 and surpassed the revised November figure of 212,000.
Markets expect the Fed to hold the interest rate at the January meeting, with futures pricing after the employment report moving to the expectation of just one rate cut this year.
EUR
European Central Bank (ECB) policymaker Olli Rehn was speaking as part of a “policy dialogue” at the Asian Financial Forum 2025, being held in Hong Kong on Monday and has said the following: “Europe must not get caught off guard by a trade war and the EU should not take hits because of tariffs.” He continued by stating that for 2025 the ECB baseline for Europe is a recovery, he expects consumption to improve in 2025 and that more easing from the Bank is likely. Currently, the market is pricing in 4 further rate cuts from the ECB in 2025, which would take the base rate to 2%.
GBP
Sterling remains under heavy selling pressure for the fifth straight day and has fallen to its lowest level since November 2023 during the Asian session on Monday. Investors remain concerned about the risk of stagflation in the UK. This, along with anxiety about the UK’s fiscal health, turn out to be key factors contributing to GBP relative underperformance.
In bond markets, the pace of yield increases slowed in the second half of last week after an 11 basis point spike in the 10-year UK government bond yield on Wednesday. That left it at 4.84% on Friday, up 25 basis points in five days, although UK officials tried to reassure markets. Darren Jones, the Treasury’s chief secretary, said the gilt market was functioning in an “orderly way”.
This content was originally published by our partners at Monex Canada.