Forex News

ING economists David Havrlant and Frantisek Taborsky review the Czech National Bank’s 25bp hike to 4%, decided on a narrow 4–3 vote. They highlight stronger inflation and softer growth in the CNB forecast, with 4% seen as a neutral level. The authors expect further hikes to be constrained by weakening economic activity and question the steep rate-cut path embedded in CNB projections.

CNB hike and policy trajectory

"The CNB proceeded with a rate hike on Thursday, raising the base rate to 4%, which matches the expectations of market participants. The decision was taken in a split vote as four board members favoured a tighter monetary policy setup, while three policymakers opted for rate stability. The situation is perceived as inflationary, with persistently elevated core inflation, weaker exchange rate, and a still strong housing market, along with ample credit growth, seen as the main forces to keep in check through a tighter monetary policy stance."

"As for short-term interest rate, the CNB forecast suggests a further increase up to 4.5% in the nearest future, followed by a gradual decline from 2Q27 to 3.5% at the end of 2028. We see such a trajectory rather as an alternative scenario, should inflation prove even stronger than in our forecast."

"The interesting thing is that the governor described the monetary conditions as very tight at this point, and even beforehand. Well, should our hypothesis about the need for much higher equilibrium rates in the brave new world be right, then 4% seems to be a neutral stance that just prevents inflation from systematically hovering above the target. And with the CNB rate projection landing at 3.5% at the very end of the forecasting horizon, we believe that the staff is perhaps starting to drift in the same direction, at least implicitly."

"That said, interest rates are an endogenous variable in the CNB workhorse model, so you can argue that this particular rate path enables the 2.5% economic expansion, with inflation receding towards the target. But hey, would you really be cutting rated so swiftly, while having inflation still running above your target and the economy growing around its potential? I have some doubts, but will stick to the old good maxim in dubio pro reo."

"The infamous “all options are open” mantra was brought out of its shallow grave and into the daylight once again, but the dwindling real interest rate in the outlook does not suggest it stands on solid ground. Overall, we see 4% as the new neutral normal and believe that this will enable the CNB to ride out the wave of second-round effects, provided that our real GDP and inflation forecasts are right."

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

ABN AMRO analyzes overlapping supply-side shocks, including energy, food and supply bottlenecks, that are pushing Eurozone inflation higher. The bank expects Eurozone inflation to rise further in coming months and remain elevated through 2027, with food and goods pipeline pressures partly offsetting easing energy inflation. Wage growth and inflation expectations are highlighted as key variables for the European Central Bank.

Inflation wave driven by supply shocks

"As a result, eurozone inflation has been trending up in recent months and reached 4% in October. These shocks affect inflation through different channels and at different speeds."

"The ultimate persistence of the inflation impulse will depend on whether it raises inflation expectations and wage demands, generating second-round effects."

"We expect eurozone inflation to pick up further over the coming months and to stay elevated, as higher food inflation and pipeline pressures partly offset easing energy inflation in 2027."

"Ultimately, we expect the combination of looser labour market conditions and high interest rates to keep inflation expectations well anchored, and this should prevent a repeat of the persistent inflation dynamics seen in 2022-23."

"Another inflation wave is coming, but it should have a shorter tail."

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

• USD/CAD rises by 0.78% on Friday, trading around 1.4120 following contrasting employment reports.
• The United States economy adds 165K jobs in October, far exceeding expectations of 65K.
• Canada's Unemployment Rate rose to 6.7%, while the economy unexpectedly lost 4.7K jobs.

USD/CAD accelerates its rally on Friday, gaining 0.78% to trade around 1.4120 at the time of writing, as stronger-than-expected United States (US) employment figures boost the US Dollar (USD), while disappointing Canadian labour market data weigh on the Canadian Dollar (CAD). The simultaneous release of the two reports highlights a sharp divergence between the labour markets of the two countries, reinforcing bullish momentum in the pair.

The US Bureau of Labor Statistics (BLS) reported on Friday that Nonfarm Payrolls (NFP) increased by 165K in October, significantly exceeding market expectations of 65K. September's figure was also revised higher to 60K from the previously reported 29K, while August's reading was revised upward to 186K from 133K. These revisions added a combined 84K jobs to previous estimates, further strengthening the picture of US labour market resilience. The US Unemployment Rate declined to 4.1% in October from 4.2% in September.

The stronger-than-expected employment report supports expectations that the Federal Reserve (Fed) could maintain a restrictive monetary policy stance or consider further interest rate hikes if economic conditions remain resilient. According to the CME FedWatch tool, markets now price in a nearly 80% chance of a 25-basis-point interest rate hike in December, up from around 70% the previous day. This shift in expectations provides additional support to the US Dollar, with the US Dollar Index (DXY) rising by 0.74% on Friday to around 102.35 at the time of press.

Meanwhile, Canada's labour market presents a considerably weaker picture. Statistics Canada reported that the economy unexpectedly shed 4.7K jobs in October, compared with market expectations of a 13.6K increase. Although the decline was smaller than September's substantial loss of 68.3K jobs, the Unemployment Rate climbed to 6.7% from 6.5%, exceeding forecasts for an unchanged reading.

The Canadian economy has now lost a total of 114.7K jobs over the past three months, highlighting persistent labour market weakness amid uncertainty surrounding US trade tariffs and their impact on hiring.

These disappointing figures complicate the outlook for the Bank of Canada (BoC), which raised its benchmark interest rate on October 28 for the first time in more than three years. The continued deterioration in employment could encourage policymakers to adopt a more cautious approach to additional monetary tightening, particularly if economic activity remains under pressure.

Against this backdrop, the contrasting employment reports reinforce the divergence in monetary policy expectations between the Fed and the BoC, providing additional support to USD/CAD. Stronger US labour market conditions, combined with weakening Canadian employment, could continue to favour the US Dollar against its Canadian counterpart.

USD/CAD technical analysis

In the four-hour chart, USD/CAD trades at 1.4119, capped just beneath the 200-period simple moving average (SMA) at 1.4120, which acts as immediate overhead resistance. The pair remains under a dense topside barrier formed by horizontal levels at 1.4130 and 1.4150, keeping the near-term bias cautious despite a strong advance from the 100-period SMA (EMA) support at 1.4035. The Relative Strength Index (14) has surged into overbought territory near 77, hinting that upside momentum may be stretched and vulnerable to a corrective pullback while price holds below the 200-period SMA.

On the topside, initial resistance is located at the 200-period SMA at 1.4120, followed by the horizontal caps at 1.4130 and 1.4150, with a more distant barrier at 1.4200. On the downside, the first area to watch is the recent price zone around 1.4119, with stronger support seen at the horizontal floor near 1.4070 and then at the 100-period SMA at 1.4035, where buyers previously emerged; a slide back toward this cluster would signal that the current rally is losing traction.

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