Bank of Canada interest rate rise spills over into USD
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Daily Forex Market Report 26-Jan-2023: Bank of Canada (BoC) interest rate rise spills over into USD
Matching expectations, the Bank of Canada (BoC) raised interest rates by another 25 bps on Wednesday, while announcing the continuation of its quantitative tightening programme to complement an aggressive monetary policy that saw rates rise to 4.5% over the past year.
“If economic developments evolve broadly in line with the (monetary policy report) outlook, Governing Council expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases,” said the bank, in an indication that the peak rate may now be in.
GBP/CAD rallied 0.7% to 1.660 in response, while EUR/CAD gained 0.35% to 1.461.
Analysts at ING surmised that the loonie’s negative reaction “spilled over into USD, which weakened as markets saw a higher risk that the Fed will follow the BoC with a dovish hike next week”. This staved off any substantial gains on the USD/CAD pair, which remains just below 1.340 for the time being.
Dollar losses have the potential to extend further today- gross domestic product growth for the final quarter of 2022 is expected to come in at 2.6% in this afternoon’s reading, “although with signs in recent months that consumer spending is slowing you might think that there could be considerable downside risks to that estimate”, said chief market analyst Michael Hewson at CMC Markets.
Cable headed lower this morning, but will a soft GDP read cause a reversal? – Source: capital.com
Looking at the major pairs, GBP/USD bounced higher on a weaker dollar, adding 80 pips to 1.241 on Wednesday, but has inched back to 1.239 this morning.
EUR/USD hit another fresh nine-month high of 1.092 as the markets continue to price in another two consecutive 50 bps interest rate hikes by the European Central Bank (ECB).
EUR/GBP was seen higher this morning after dipping 0.35% on Wednesday. The pair was changing hands at 88.04p in this morning’s Asia trading window.
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