The U.S. Dollar is trading at its weakest point overall since the start of October following the Federal Reserve’s decision to cut interest rates accompanied by a somewhat mixed press conference.
Chairman Jerome Powell sounded more concerned about the state of labor and less worried with inflation as he explained why the voting member lacked consensus. Two members wanted to keep borrowing costs unchanged while one voter believed 50 basis points would be appropriate instead of only 25bps.
Powell explained that all officials were in agreement with where the economy stands: lower economic growth than a year ago while inflation has remained stubborn. However, they do not agree on timing of cuts, and few see the need to worry more about complaints over affordability as prices keep rising and hurting the consumer.
As a whole, economists are also differing in interpretation of the Fed, especially now that they are not all on the same page on monetary policy. There is camp of analysts that believes this event was more “hawkish” than expected, particularly because the median outlook for growth in 2026 was upgraded from 1.8% to 2.3%. Additionally, there is no clarity that there will continue to be a majority in agreement with acting in an expansionary manner going forward.
FX-wise, the Buck down and perhaps has more room to fall after the release of Initial Jobless Claims this morning seemed to echo some of the sentiment from Powell’s take on labor facing constraints. The figure from last week came in at 236K vs. 220K estimated and the previous numbers also showed more people seeking benefits than the original reading. For now, chances of a cut at their January 28th meeting stand at 24.4%.
What to Watch This Week…
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EUR ⇑
The Euro is just about to cross a level that would bring it right at its highest point from mid-September. Next week, we will get the Euro-zone’s take on things as the European Central Bank meets on Thursday. Prior to the key event, there will be plenty of aggregate Euro-zone data to consume and analyze with the releases of October Industrial Production, Purchasing Managers Index for December, and expectations gauges as well as November’s inflation in the form of Consumer Price Index. It is important to note that Euro improvement may be limited by poor performance, however, it is currently being uplifted by central bank policy divergence as the ECB plans to act opposite of the Fed.
CAD ⇑
The Canadian Dollar climbed to its highest value over the U.S. Dollar since start of September as the Bank of Canada decided prior to the Fed meeting to maintain interest rates the same. Backed by surprisingly good economic growth and stronger labor than anyone predicted, the Canadian economy merits no more easing. There is now a chance that the BOC prioritizes tackling high inflation with a rate hike in 2026. As of now, odds of slash are at zero percent for the January 28th meeting, once again matching the Fed calendar.
