Forex News

• Canada's GDP contracted in Q4 after expanding in Q3.
• USD/CAD remains within a tight daily trading channel below 1.3700.

Canada's real Gross Domestic Product (GDP) contracted at an annualized rate of 0.6% in the fourth quarter, Statistics Canada reported on Friday. This print followed the 2.4% growth recorded in the previous quarter and came in below the market expectation of 0%.

On a quarterly basis, GDP contracted by 0.2% after the third quarter's 0.6% expansion.

"Real GDP increased 1.7% in 2025, the slowest pace of annual growth since the decline in 2020. Lower exports, particularly to the United States, were the main contributor to the slower rise in GDP in 2025," the press release read.

Market reaction

USD/CAD largely ignored these figures and was last seen trading unchanged on the day at 1.3680.

• EUR/GBP extends gains as Sterling weakens on political uncertainty.
• Soft UK consumer confidence and dovish BoE expectations weigh on Sterling.
• German inflation cools, but the Euro remains supported amid a steady ECB outlook.

The Euro (EUR) ticks higher against the British Pound (GBP) on Friday, with Sterling under broad pressure as renewed political uncertainty in the United Kingdom (UK) dampens investor sentiment. At the time of writing, EUR/GBP is trading around 0.8771, hovering near its highest level since December 19.

The UK Labour Party lost the parliamentary by-election in the Greater Manchester seat of Gorton and Denton, a constituency it had represented for nearly 100 years.

The unexpected defeat has increased scrutiny on Prime Minister Keir Starmer’s leadership and has fueled internal discussions within the Labour Party about the possibility of a leadership challenge ahead of the next general election.

On the data front, the latest GfK Consumer Confidence index fell to -19 in February, down from -16 in January, missing the forecast of -15.

In the Eurozone, softer German inflation data did little to temper the bullish tone in EUR/GBP. Preliminary data showed Germany’s Consumer Price Index (CPI) rose 0.2% MoM in February, below the 0.5% forecast, though slightly higher than the previous 0.1% increase. On an annual basis, CPI eased to 1.9% YoY, down from 2.1%, missing expectations of 2%.

Meanwhile, the preliminary Harmonized Index of Consumer Prices (HICP) climbed 0.4% MoM, undershooting the 0.5% forecast but rebounding from -0.1% previously. The annual HICP rate eased to 2.0% from 2.1%.

On the interest rate outlook, growing expectations of a more dovish outlook from the Bank of England (BoE) are also weighing on the Pound. Markets are increasingly pricing in the possibility of a rate cut at the March meeting, amid cooling inflation and deteriorating labor market conditions.

In contrast, the European Central Bank is widely expected to keep interest rates unchanged through the rest of 2026, as inflation stabilizes below the 2% target.

Brown Brothers Harriman’s (BBH) Elias Haddad notes the US Dollar is trading sideways as a lack of policy-relevant data keeps FX ranges contained, even as S&P500 futures signal further equity weakness and Treasury yields fall below 4.00%. He highlights safe-haven demand, fading inflation risks, and soft domestic demand, while the Fed is seen able to stay patient on rate cuts.

Fed patience as yields signal caution

"USD continues to trade sideways in the absence of policy-relevant economic data releases."

"Treasuries are up with the 10-year note below 4.00% for the first time since end-November 2025."

"The decline in Treasury yields reflects increased safe haven demand (perhaps a hedge against the so-called AI scare trade) as breakeven inflation rates remain steady."

"Fed Governor Stephen Miran reiterated his call for more aggressive rate cuts yesterday. Miran said “four cuts [100bps this year], I think, are appropriate, and I’d rather get them sooner than later.” Fed funds futures continue to fully price-in 50bps of easing by year-end, which is reasonable in our view."

"Nonetheless, the Fed can afford to be patient before resuming cutting rates."

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

• US PPI rose at a stronger pace than expected in January.
• US Dollar Index stays in daily range below 98.00.

Producer inflation in the United States, as measured by the change in the Producer Price Index (PPI), declined to 2.9% on a yearly basis in January from 3% in December, the US Bureau of Labor Statistics (BLS) reported on Friday. This reading came in above the market expectation of 2.6%. On a monthly basis, the PPI rose 0.5% following the 0.4% increase (revised from 0.5%) recorded in December.

Other details of the report showed that the PPI ex Food & Energy was up 3.6% on a yearly basis in January, compared to the market forecast of 3%.

Market reaction

The US Dollar Index showed no immediate reaction to producer inflation figures and was last seen trading marginally higher on the day at 97.82.

Citing an email from the US Ambassador to Israel, Mike Huckabee, NBC News reported that the diplomat has advised nonessential staff members to leave the country immediately.

"The guidance was issued out of 'an abundance of caution' after meetings and calls through the night, including conversations with the State Department, Huckabee said in the email," NBC News noted and added: "He also urged anyone intending to leave to go ahead and book flights, citing the likely surge in demand out of Israel after the embassy's move."

Market reaction

Gold and Silver rose sharply with the immediate reaction to this headline. At the time of press, Gold was trading at $5,220, rising 0.75% on the day, while Silver was up 4.3% at $92.03.