Forex News

• USD/CAD holds near a one-month low after the BoC leaves its policy rate unchanged at 2.25%.
• The BoC cuts its 2026 growth forecast but raises its inflation projection.
• Softer US PPI data weighs on the US Dollar, while traders await Governor Macklem’s press conference.

USD/CAD trades flat on Wednesday as traders show a limited reaction to the latest Bank of Canada (BoC) monetary policy announcement. At the time of writing, the pair trades around 1.4061, hovering near a one-month low.

The BoC left its policy rate unchanged at 2.25%, as widely expected. In its monetary policy statement, the central bank said the current rate remains appropriate to support the economic recovery and return inflation to its 2% target, in line with the latest Monetary Policy Report projections.

The BoC acknowledged that uncertainty remains high and said the Governing Council will continue to assess the strength of the Canadian economy and the inflation outlook. It also reiterated that policymakers are prepared to adjust interest rates if needed.

In its latest Monetary Policy Report, the BoC lowered its 2026 economic growth forecast to 0.7% from 1.2%. Second-quarter growth is estimated at an annualized rate of 2.5%, followed by 1.5% in the third quarter.

The central bank also raised its 2026 inflation projection to 2.5% from 2.3% and expects inflation to return to its 2% target by early 2027. It identified US trade policy and the war in the Middle East as the two biggest risks to the outlook.

Traders now await BoC Governor Tiff Macklem’s post-meeting press conference for more clues on the central bank’s policy outlook.

On the US side, softer-than-expected Producer Price Index (PPI) data weighs on the US Dollar (USD), although the Canadian Dollar (CAD) struggles to benefit, leaving USD/CAD broadly unchanged.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades around 100.80 after easing from an intraday high of 101.03.

Headline PPI fell 0.3% MoM in June after rising 0.6% in May, below the forecast of 0%. Annual producer inflation slowed to 5.5% from 6.0%, undershooting expectations of 6.2%.

Core PPI rose 0.2% MoM, below the expected 0.4% increase but above May’s 0.1% gain. The annual core rate edged up to 4.7% from 4.6%, although it came in below the 5.2% forecast.

Chris Turner at ING says EUR/USD rallied on softer US CPI but warns that rising Oil and European natural gas prices limit upside. He expects EUR/USD to struggle above 1.1460/70 and potentially retreat toward 1.1360/80 if Oil gains another leg higher. Strong demand below 1.14 and possible rotation into European equities are noted, though flows into US-listed eurozone ETFs remain muted.

Energy sector weighs on Euro

"Along with most dollar pairs, EUR/USD very much enjoyed yesterday's soft US CPI release. Were it not for developments in the Gulf and in energy markets in general, we would be happy to call EUR/USD steadily higher from here. But European natural gas is now back to levels seen in mid-March and, as above, it is too early to trade an 'all-clear' US inflation story."

"In the absence of a major improvement in energy markets, we suspect that EUR/USD will struggle to break above the 1.1460/70 area and again could move down to the 1.1360/80 area should oil prices deliver another leg higher."

"We do note, however, that there seems to be strong demand for EUR/USD sub 1.14. One suggestion could be a rotation into European equities as analysts raise expectations for European earnings. That may be the case, but so far those flows have not shown up in US-listed eurozone equity ETFs, e.g., the iShares MSCI Eurozone ETF."

"Elsewhere, a pro-risk environment given lower prospects of Fed tightening, higher energy prices and potentially lower volatility favouring the carry trade all point to the Norwegian krone recovering some of its losses since May. We have a one-month target at 11.05 for EUR/NOK, but the move could easily extend to 10.95."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Federal Reserve (Fed) Bank of New York President John Williams said on Wednesday that the latest United States (US) Consumer Price Index (CPI) report was consistent with the inflation progress he hopes to see over the coming months. Williams delivered keynote remarks at a talk with the Partnership for New York City.

Key takeaways:

Markets are responding to changes in the Middle East conflict.

The latest CPI reading was consistent with the inflation progress Williams hopes to see in the coming months.

The CPI report represented a “little piece” of inflation returning toward the Federal Reserve’s goal.

Risks from energy-price inflation have eased somewhat.

There is “absolutely not” any consideration of changing the Fed’s 2% inflation target.

The 2% target remains the right number, and the Fed should not “move the goal posts.”

Fed Chair Kevin Warsh profoundly believes in the central bank’s mission.

Warsh understands the importance of delivering price stability and maximum employment.

Warsh is bringing fresh thinking that is “very welcome.”

The Fed Chair is focused on the difficult task of achieving the central bank’s monetary-policy goals.

There was very strong support among policymakers for moving away from forward guidance.

The Fed does not currently have a clear direction regarding where interest rates are heading or when they could change.

Williams fully supported the decision to step away from forward guidance.

He does not currently have a particular view about the future direction of monetary policy.

The US is experiencing an explosion in the creation of new businesses.

There remains significant dynamism in the US economy.”

Williams underscores a 2% inflation target but offers no rate path clarity

The Fed’s Williams delivered a moderately cautious tone with a FXS Speechtracker score of 5.4/10, slightly softer relative to the historical average of 5.9/10. The emphasis that the latest CPI print is “consistent” with the desired disinflation path and that risks to energy price inflation are “somewhat less” is tempered by a firm rejection of any change to the 2% target and an explicit lack of guidance on the future path of interest rates, reinforcing data dependence amid Middle East conflict-related market shifts.

The strong support for moving away from forward guidance and comments on US economic dynamism point to confidence in underlying growth but leave the US Dollar sensitive to incoming data rather than policy pre-commitments.

The FXS Fed Sentiment Index slipped by 0.38 points to 126.13, signaling a modest pullback in perceived hawkishness versus recent communications. Despite the decline, the index remains firmly in hawkish territory above 100, indicating that policy bias is still skewed toward restraint even as the tone of this speech is slightly less hawkish compared to the established baseline captured by the FXS Speechtracker.

The Bank of Canada (BoC) left its policy rate unchanged at 2.25% on Wednesday, as widely anticipated. Governor Tiff Macklem explains the decision in a press conference after the BoC dropped references to rate cuts within its statement.

BoC Macklem press conference highlights

Economic growth looks to have resumed in Canada.

The economy is projected to grow by 1.8% in both 2027 and 2028.

Longer-term inflation expectations remain well anchored.

Biggest risks are conflicts with the Middle East and the trade relationship with the US.

We will not let higher oil prices become persistent inflation.

Inflation in Canada is poised to ease gradually, provided global oil prices decline from elevated levels."

This section below was published at 13:45 GMT to cover the Bank of Canada's policy announcements and the initial market reaction.

BoC Monetary Policy Report key takeaways

After a year of weakness, Canada’s economy is showing signs of improvement.

Growth is expected to pick up, and inflation will ease gradually from its recent peak.

Uncertainty is still high.

The Canadian economy has been adjusting to US tariffs.

Middle East war-driven inflation’s spillovers to other goods and services remain contained.

Growth in the second quarter is anticipated to be solid at 2.5%.

Inflation is expected to ease to about 2.5% in the second half of 2026 and reach the 2% target by early 2027."

Market reaction

The Canadian Dollar (CAD) barely reacted to the anticipated outcome, and the USD/CAD pair hovers around 1.4050.

This section below was published as a preview of the Bank of Canada's (BoC) monetary policy announcements at 09:00 GMT.

• The Bank of Canada is expected to keep its interest rate at 2.25%.
• The Canadian Dollar extends its recovery vs the US Dollar.
• Markets pencil in just over 15 bps of BoC tightening by year-end.

The Bank of Canada (BoC) is widely expected to keep its policy rate unchanged at 2.25% on Wednesday. This would be the sixth consecutive event with the central bank keeping its hand steady.

The BoC left its policy rate unchanged at 2.25% last month, as widely anticipated. The statement and Governor Tiff Macklem's press conference reinforced a patient approach, as policymakers continue to balance lingering inflation risks against an economy that remains in excess supply.

The central bank expects inflation to hover around 3% in the near term before gradually easing back toward its 2% target. In addition, policymakers also reiterated that they are largely looking through the impact of the Middle East conflict on headline inflation, noting limited evidence that higher energy prices are feeding through more broadly into consumer prices.

While the board stressed it would not allow higher energy costs to become a source of persistent inflation, it gave little indication that a policy response is imminent. Additionally, rate setters also pointed to a likely rebound in growth during Q2, although they cautioned that economic activity remains weak and uncertainty surrounding US trade policy persists.

During his press conference, Governor Macklem emphasised that any future policy move will depend on economic conditions rather than on a predetermined timeline. He noted that core inflation has edged lower, reiterated that economic weakness continues to weigh on prices and argued that little has changed since the previous meeting, with incoming data broadly evolving as expected.

Inflation, however, remains the key watch point after the headline CPI rose by 3.2% in the year to May, above the previous month’s print of 2.8%. In the same direction, the BoC’s core inflation ticked higher to 2.2% from a year earlier. The bank’s preferred measures — CPI-Common, Trimmed and Median — came in mixed. But at 2.7%, 2% and 2.1%, respectively, they still remain above target.

When will the BoC release its monetary policy decision, and how could it affect USD/CAD?

The Bank of Canada will announce its policy decision on Wednesday at 13:45 GMT, followed by a press conference with Governor Tiff Macklem at 14:30 GMT.

Markets anticipate the central bank maintaining its current stance, with a projected tightening of nearly 17 basis points by the end of 2026.

Pablo Piovano, Senior Analyst at FXStreet, points out that further gains in USD/CAD now appear limited by the 1.4250 zone, forcing the pair to recede and revisit the area of multi-week troughs near 1.4050.

“In case the selling pressure gathers traction, the pair’s next relevant support is expected at the provisional 55-day Simple Moving Average (SMA) near 1.3930, while the loss of this region exposes a move toward the critical 200-day SMA around 1.3850, closely followed by the interim 100-day SMA. A deeper and sustained retracement from here should see the next contention at the May floor at 1.3549 (May 1)," Piovano adds.

On the upside, Piovano sees the next hurdle at the YTD peak of 1.4248 (June 24 and 25). The break above the latter could prompt the pair to attempt a move toward the April 2025 ceiling at 1.4414 (April 1).

“Momentum favours extra losses,” he adds, noting that the Relative Strength Index (RSI) is receding further and is revisiting the 44 region, while the Average Directional Index (ADX), just over 43, suggests the underlying trend remains pretty solid.

• AUD/USD rises toward 0.7000 as softer US producer inflation weighs on the US Dollar.
• US headline and core PPI came in below expectations, reinforcing signs that inflation pressures may be easing.
• Mixed Chinese data limited the move as weaker GDP growth was offset by stronger Industrial Production and Retail Sales.

AUD/USD trades higher near the 0.7000 level on Wednesday as the Australian Dollar (AUD) benefits from broad US Dollar (USD) weakness following softer-than-expected United States (US) producer inflation data. Stronger Chinese industrial activity and retail spending also supported the Aussie despite slower economic growth.

The US Producer Price Index (PPI) declined 0.3% MoM in June, below expectations for an unchanged reading and reversing May’s 0.6% increase. Annual producer inflation slowed to 5.5% from a revised 6.0%, missing the 6.2% market forecast as well.

Core PPI, which excludes food and energy, increased 0.2% MoM, below the expected 0.4%. The annual underlying rate rose slightly to 4.7% from 4.6% but remained below the 5.2% consensus. The figures reinforced expectations that US inflation pressures may be easing, weighing on the Greenback.

Federal Reserve Bank of New York President John Williams said that the latest June CPI report was consistent with the inflation progress he hopes to see over the coming months. However, Williams added that policymakers do not have a clear direction regarding where interest rates are heading or when they could change.

Chinese data offered mixed signals. Gross Domestic Product expanded 0.9% QoQ in the second quarter, matching expectations but slowing from 1.3%. Annual growth weakened to 4.3%, below the 4.5% forecast and the previous 5.0%.

However, Industrial Production rose 5.3% YoY in June, exceeding expectations of 4.6%, while Retail Sales increased 1.0% after declining 0.6% previously. The stronger activity figures helped ease concerns about Chinese demand and provided additional support to the China-sensitive Australian Dollar.

Short-term technical analysis:

On the 4-hour chart, AUD/USD trades at 0.6996, maintaining a bullish near-term bias as it holds above both the 20-period Simple Moving Average (SMA) at 0.6955 and the 100-period SMA at 0.6924. The pair is probing the upper end of the recent range, with price just under the horizontal resistance line at 0.6999, while the Relative Strength Index (RSI) near 69 suggests firm but increasingly stretched upside momentum.

On the downside, immediate support is seen at 0.6993, ahead of successive horizontal levels at 0.6987 and 0.6983 that mark a short-term demand band, with the 20-period SMA at 0.6955 and the 100-period SMA at 0.6924 reinforcing the broader constructive structure. On the topside, a clear break above resistance at 0.6999 would open the way for further gains, while failure to overcome this barrier could trigger a corrective pullback toward the clustered supports beneath the figure.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Brown Brothers Harriman’s Elias Haddad notes the Dollar has steadied after its post-CPI slide, with US economic outperformance, a higher-for-longer Federal Reserve stance and strong foreign demand for US securities limiting further downside. Upcoming Fed Beige Book and several Fed speeches are highlighted as key inputs for Dollar and rate expectations.

Dollar supported by Fed and flows

"We see limited follow-through to the dollar’s post-CPI decline for three reasons. First, a stabilizing US labor market combined with a less worrisome inflation backdrop reinforces the US economic outperformance narrative and should underpin USD."

"Second, Fed Chair Kevin Warsh’s unwavering commitment to the Fed’s 2% inflation target is also consistent with a higher for longer policy stance and supports USD. Warsh vowed yesterday to “double down” on the Fed’s 2% inflation target, adding that the softer June CPI data doesn’t make him think it’s “mission accomplished” or “everything is swell.”"

"Third, underlying demand for USD remains strong. The US Treasury International Capital (TIC) data showed net foreign purchases of long-term US securities (treasury bonds & notes, corporate bonds, equities, gov’t agency bonds) increased by $263bn in May (the most since November 2025) vs. $207bn in April."

"The Fed Beige Book (7:00pm London, 2:00pm New York) will offer fresh anecdotal insights on US economic activity."

"Equity markets are firmer powered by technology stocks and led by the semiconductor-heavy Kospi index. The sell off in bonds stabilized while USD steadied after sliding yesterday on softer than expected US June inflation."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Rabobank's Senior FX Strategist Jane Foley discusses the British Pound's (GBP) strong performance, noting GBP is the second-best G10 currency over three months despite no Bank of England (BoE) hikes. The team highlights market optimism around incoming UK Prime Minister Burnham and his likely right-leaning Chancellor choice, but stresses fiscal constraints and political scepticism. They expect EUR/GBP to rise toward 0.87 over a 3‑month horizon.

Pound resilience faces political tests

"On a 3-month view the pound is the second best performing G10 currency after the USD. This is despite domestic political change in the UK and the fact that the BoE, unlike five other G10 central banks, has not hiked interest rates this year. There has been a tightening of UK market rates relative to the start of the Iran war, although rate hike expectations have dropped noticeably back from their peak."

"GBP’s resilient tone suggests that the market may be willing to give PM-in- waiting-Burnham the benefit of a honeymoon period. This morning’s press reports that he may be erring towards choosing a Chancellor from the right of the Labour party rather than the left, strengthens the potential that both the gilts market and GBP will breathe a sigh of relief. That said, it is still unclear how Burnham intends to fund his agenda."

"We remain sceptical of the ability of GBP to extend its current resilient tone beyond the summer and look for EUR/GBP to push higher towards 0.87 on a 3-month view."

"This factor coupled with Rabo Research’s house view that BoE rates will remain on hold this year, suggests scope for a move higher in EUR/GBP on a 3-month view."

"For certain, the market will be watching news on fiscal issues closely in view of the clear budgetary constraints in the UK. For this reason, Burnham’s choice of Chancellor will be a big test. While UK asset markets will be relieved if his Chancellor is not from the left of the party, it may be tough for the new PM to maintain any honeymoon period into the autumn."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• EUR/USD recovers intraday losses as softer US inflation data weighs on the US Dollar.
• Back-to-back CPI and PPI misses reduce expectations of an immediate Fed rate hike.
• Middle East-driven energy risks keep inflation concerns alive.

EUR/USD recovers its intraday losses on Wednesday as the US Dollar (USD) comes under pressure after the latest US inflation data surprised to the downside. At the time of writing, the pair trades around 1.1430 after hitting an intraday low of 1.1406.

The US Producer Price Index (PPI) fell 0.3% MoM in June after rising 0.6% in May, below the forecast of 0%. On an annual basis, producer inflation slowed to 5.5% from 6.0%, also undershooting expectations of 6.2%.

Core PPI, which excludes food and energy, rose 0.2% MoM, below the expected 0.4% increase but slightly above May’s 0.1% gain. The annual core rate edged up to 4.7% from 4.6%, although it came in below the 5.2% forecast.

The figures follow softer US Consumer Price Index (CPI) data released on Tuesday. The back-to-back inflation misses have reduced expectations of an immediate Federal Reserve (Fed) interest rate hike, pulling the US Dollar lower and offering some support to the Euro (EUR).

The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, is trading below 101 after giving up its earlier gains.

According to the CME FedWatch Tool, markets now see an 88% chance that the Fed will leave interest rates unchanged at its July meeting, while the probability of a September hike has fallen to around 52%.

However, the slowdown in inflation could prove temporary, as energy-driven price risks persist following renewed fighting between the United States (US) and Iran. Disruptions to supplies through the Strait of Hormuz have lifted Oil prices, keeping the possibility of a Fed rate hike later this year on the table.

New York Fed President John Williams said on Wednesday that inflation is still too high and must return to the Fed’s target on a sustained basis. Williams expects inflation to ease to around 3.25% by the end of this year, move closer to 2% in 2027 and reach the target in 2028.

On the Euro side, European Central Bank (ECB) officials continue to signal a cautious approach after raising the Deposit Facility Rate by 25 basis points to 2.25% in June. Bundesbank President Joachim Nagel said on Wednesday that rates are at an appropriate level following last month’s decision, but added that policymakers should act decisively if necessary.