– FOMC is less dovish than expected
– Bank of England leaves rates unchanged at 4.50%
– USD dollar rebounds on Fed rate outlook.
USDCAD: open 1.4375, overnight range 1.4315-1.4377, close 1.4326, WTI 67.03, Gold 3041.07
The Canadian dollar has drifted lower ever since the Federal Open Market committee (FOMC) left US rates unchanged at 4.50%, which was expected.
What sparked the rally was the view that the statement was a tad more hawkish than dovish because the Summary of Economic Projections (SEP) downgraded the growth outlook to 1.7% from 2.1% in December while raising the Core PCE forecast to 2.8% from 2.5%. That suggested that US rates would remain unchanged for longer than anticipated, despite the SEP still projecting two more rate cuts in 2025.
Fed Chair Jerome Powell even invoked “transitory” when he spoke about the impact of Trump’s tariffs on inflation. He said that the tariffs were driving prices higher but could not determine if the rise was temporary or lasting.
President Trum was far from amused. He took to his TruthSocial account and said, The Fed would be MUCH better off CUTTING RATES as U.S.Tariffs start to transition (ease!) their way into the economy. Do the right thing. April 2nd is Liberation Day in America!!!
The Canadian dollar is also being weighed down as Chinese tariffs on $3.7 billion of goods come into effect today. China is responding to the Canadian tariffs slapped on Chinese electric vehicles.
EURUSD traded in a 1.0839-1.0913 range as traders digested the FOMC decision and Powell’s comments. The Summary of Economic Projections maintained expectations for two rate cuts in 2025, consistent with December’s forecast, but projected softer growth and firmer inflation. That combination reinforced support for the US dollar. Meanwhile, the Swiss National Bank trimmed rates by 25 basis points to 0.25%.
GBPUSD traded in a 1.2946-1.3015 range, pressured by broad US dollar strength and cautious positioning ahead of the Bank of England’s monetary policy announcement. The BoE is widely anticipated to hold rates steady, with market attention shifting to next week’s UK budget for further policy signals.
USDJPY traded in a 148.18-148.88 range, tumbling from a pre-FOMC peak of 150.13 as traders reassessed the likelihood of future US rate hikes. The shift in expectations boosted equities and pulled the 10-year Treasury yield down to 4.211% from 4.32% before the Fed’s announcement. Activity was subdued as Japanese markets remained closed for the Vernal Equinox holiday.
AUDUSD traded in a 0.6283-0.6364 range, sliding after the FOMC decision was perceived as less dovish than expected, compounded by a weak Australian employment report. February saw a steep job loss of 52,800 positions, with January’s figure revised lower by 13,500 to 30,500. Despite the disappointing data, the Australian Bureau of Statistics maintains that labor market conditions remain tight.
