The Bank of Canada (BoC) cut interest rates by 25bp taking the headline rate down to 3%. The bank dropped its guidance on future rate moves due to the threat Donald Trump's tariffs potentially pose to the Canadian economy, such as diminished growth and higher inflation. As a result, CAD was marginally weaker. Should Donald Trump impose tariffs on Canada over the weekend, then markets see potential for CAD to weaken further.
Yesterday, the Federal Reserve (Fed) took a bold stance holding rates, with Chairman Powell indicating that only clear and undeniable signs of economic easing will prompt further rate cuts. Markets continue to price in two rate cuts this year: 25bp in June and 25bp in December.
*Daily move - against G10 rates at 7:30am, 30.01.25
** Indicative rates - interbank rates at 7:30am, 30.01.25
Markets have fully priced in a 25bp rate cut by the European Central Bank (ECB) today, taking the headline rate down to 2.75%. The accompanying statement will be the crucial compass guiding us through the ECB's future intentions.
Recent data has suggested that economic activity in Europe has been improving, with inflation rising and markets reducing the amount of rate cuts forecast this year.
Should Lagarde’s comments after the decision align then we could well see the number of expected rate cuts reduce and thus a stronger EUR. We’ll also be looking out for any comments surrounding the threat of Trump tariffs on Europe and what this also means for monetary policy.
The EUR is marginally weaker this morning after German GDP numbers for Q4 came in softer than expected.
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