Forex News

Governor Tiff Macklem took questions from reporters, offering more detail on the central bank’s thinking. His remarks followed a widely expected decision to leave the policy rate unchanged at 2.25%.

BoC press conference highlights

Businesses are careful about hiring and investment plans.

Recent jobs data hasn't changed our economic outlook.

Impact of the federal budget would depend on the speed and effectiveness of execution.

The federal budget was not adding a lot of additional inflationary pressures.

Markets could count on decisions being taken one at a time.

Markets would be assessing data relative to their outlook.

StatsCan had a very tough job.

What we don't want is prices coming down.

Both supply and demand look stronger.

The output gap is now smaller.

Q3 was strong largely because imports were really weak; final domestic demand was actually flat.

We expect Q4 to be weak.

We still think the economy shows an excess of supply.

This section below was published at 14:45 GMT to cover the Bank of Canada's policy announcements and the initial market reaction.

As most market watchers expected, the Bank of Canada (BoC) kept its policy rate at 2.25% on Wednesday. Now all eyes shift to Governor Tiff Macklem’s upcoming press conference at 15:30 GMT, where investors will be looking for clues on what comes next.

BoC policy statement key highlights

The BoC reiterates that the current rate is at about the right level to keep inflation close to 2% as long as the economy and inflation evolve in line with projections.

BoC reiterates that if the outlook changes, it is prepared to respond.

CPI inflation will remain close to the 2% target as economic slack roughly offsets cost pressures linked to trade reconfiguration.

Underlying inflation is still around 2.5%.

Q4 GDP growth is likely to be weak; final domestic demand will grow in Q4 but will be offset by a decline in net exports.

The Canadian labour market is showing some signs of improvement.

Q3 GDP growth in Canada was surprisingly strong, largely reflecting trade volatility.

Market reaction

The Canadian Dollar (CAD) trades with decent losses on Wednesday, prompting USD/CAD to advance to weekly highs around 1.3860 in the wake of the BoC’s interest rate decision.

This section below was published as a preview of the Bank of Canada's (BoC) monetary policy announcements at 10:00 GMT.

The Bank of Canada is expected to keep its interest rate at 2.25%.

• The Canadian Dollar remains firm, dragging USD/CAD to multi-week lows.
• The BoC reduced its policy rate by a quarter-point in late October.
• The BoC could start hiking rates by mid-2026.

The Bank of Canada (BoC) is widely expected to maintain its benchmark interest rate at 2.25% at its meeting on Wednesday. That would follow two consecutive quarter-point rate cuts in September and October.

Indeed, the central bank trimmed its benchmark rate by 25 basis points in late October, exactly what everyone was expecting.

Furthermore, policymakers signalled they’re pretty comfortable with where rates are now: low enough to support the economy as it adjusts to the fallout from the US-driven trade tensions, but still tight enough to keep inflation hovering around target.

The issue of inflation continues to persist: Headline CPI deflated to 2.2% YoY in October, while the core CPI climbed to 2.9%. The BoC’s preferred measures, Common, Trimmed, and Median CPI, eased a tad, although they remain comfortably above the target at 2.7%, 3.0%, and 2.9%, respectively.

Previewing the BoC’s interest rate decision, analysts at the National Bank of Canada (NBC) noted, “The Bank of Canada is set to leave its policy rate unchanged at 2.25%, after declaring in October that it is ‘at about the right level’ to keep inflation near target and help the economy through a structural adjustment.”

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 14:45 GMT, followed by a press conference with Governor Tiff Macklem at 15:30 GMT.

Markets anticipate the central bank to maintain its current stance, with a projected tightening of approximately 33 basis points by the end of 2026.

Pablo Piovano, Senior Analyst at FXStreet, points out that the CAD has been appreciating steadily against the Greenback since the November lows north of 1.4100, sending USD/CAD back to the 1.3800 neighbourhood. He also notes that the technical setup still leans toward further losses if spot keeps the trade below its key 200-day SMA at 1.3904.

From here, Piovano says a return of bullish momentum could send USD/CAD up to test the November high at 1.4140 (November 5), and if that breaks, the next target would be the April ceiling at 1.4414 (April 1).

On the other hand, he highlights initial support at the December base of 1.3799 (December 8), seconded by the September floor at 1.3726 (September 17) and the July valley at 1.3556 (July 3).

“Momentum favours extra declines,” he adds, noting that the Relative Strength Index (RSI) is hovering below the 36 level and the Average Directional Index (ADX) above 26, which hints that the current trend is gathering steam at a firm pace.

• The US Dollar Index drops, boosting GBP/USD as traders await the Federal Reserve rate decision.
• UK economic outlook improves after Autumn Budget, but BoE rate cut seen as likely.
• Technical analysis shows GBP/USD testing key moving averages for further gains.

The Pound Sterling (GBP) advances during the North American session on Wednesday as the US Dollar (USD) weakens on the expectation that the Federal Reserve (Fed) will cut rates later in the day. At the time of writing, GBP/USD trades at 1.3336 after bouncing off daily lows of 1.3296.

GBP/USD climbs amid US Dollar weakness and central bank rate cut expectations

The financial markets seem to be paused, with traders keeping their powder dry waiting for the Fed. Nevertheless, the US Dollar Index (DXY), which tracks the performance of the buck’s value against a basket of six other currencies, is down 0.21% at 99.03, providing a tailwind for Cable.

Data in the US had shown mixed signals, with inflation halting its advance towards the 3% threshold as measured by the Core PCE Price Index, while the most recent jobless claims readings hinted that the labor market is in a no-hiring, no-firing environment.

On Tuesday, the ADP Employment Change 4-week average showed that companies hired an average of 4,750 people in the four weeks ending November 22, an improvement compared to the prior reading. Also, job vacancies rose, as stated by the JOLTS report for October.

Regarding the UK economy, the markets were relieved after the Autumn Budget. Last week’s flash PMIs reading showed that the economy is faring better than expected, yet the Bank of England is expected to reduce rates at next week’s meeting.

Capital Edge shows odds for a 25 bps rate cut by the BoE are nearly 92% for the December 18 meeting, with traders also pricing an additional rate cut for 2026.

What to expect at the Fed meeting?

Traders had priced in a 'hawkish cut' by the Fed. Of interest would be the economic projections for the next year, regarding the Unemployment Rate, the Core PCE figures, and the path for the Fed funds rate. After the initial reaction, Chair Jerome Powell’s press conference will set the stage for Q1 2026, as he will not be tapped to remain the Fed Chair for another period.

GBP/USD Price Forecast: Technical outlook

GBP/USD remains neutral to upward biased, with trades testing the 200-day SMA at 1.3333. A breach of the latter exposes the 100-day SMA at 1.3358, followed by 1.3400. On the flip side, the first support is 1.3300, followed by the 50-day SMA at 1.3255 and the 20-day SMA at 1.3210.

• The Canadian Dollar softens after the BoC signals a steady policy stance.
• BoC keeps rates unchanged at 2.25%, reaffirming policy is “about the right level” as inflation stays near target.
• Market attention now turns to the Fed decision and updated economic projections.

The Canadian Dollar (CAD) trades under pressure against the US Dollar (USD) on Wednesday as markets digest the latest interest rate decision from the Bank of Canada (BoC). At the time of writing, USD/CAD is trading around 1.3861, with traders now turning their attention to the Federal Reserve’s (Fed) monetary policy announcement due later at 19:00 GMT.

The BoC kept its overnight rate unchanged at 2.25%, in line with market expectations, and maintained a steady tone in its policy statement. The central bank noted that while global conditions remain uncertain, Canada’s economy expanded by a stronger-than-expected 2.6% in the third quarter, driven mainly by volatile trade flows rather than stronger domestic demand.

The BoC now expects Gross Domestic Product (GDP) to soften in the fourth quarter before picking up in 2026. Inflation remains close to target, with headline CPI at 2.2% and core measures holding between 2.5% and 3%. Given this backdrop, the Governing Council reaffirmed that the current rate is “about the right level” to manage inflation risks and guide the economy through broader structural adjustments linked to global trade frictions.

Governor Tiff Macklem’s opening comments ahead of the press conference reinforced the bank’s cautious stance. He acknowledged the economic drag from steep US tariffs but emphasized that the Canadian economy has shown resilience. Macklem also noted that inflation pressures remain contained and that keeping the policy rate at the lower end of the neutral range is appropriate for now.

In the United States, the Fed is poised to deliver another 25 basis point (bps) rate cut, which would bring the Federal Funds Rate down to the 3.50%-3.75% range. Attention will be squarely on Fed Chair Jerome Powell’s post-meeting press conference, along with the updated dot plot and economic projections.

The Japanese Yen (JPY) is consolidating above its late-November lows as yield spreads tilt modestly against it. With BoJ tightening expectations firm and key Fed and Tankan events approaching, near-term volatility risks remain elevated, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Wider US–Japan yield spread drives latest move

"The yen is steady, consolidating its recent pullback while still trading above the local low from mid/late-November. The latest pullback has been fundamentally driven, with US-Japan yield spreads widening modestly from their recent lows."

"The outlook for relative central bank policy remains supportive as we head into next week’s BoJ policy meeting, with markets pricing 23bpts of tightening. Near-term risk lies with the Fed, and the quarterly domestic Tankan sentiment figures scheduled for release early next week."

Pound Sterling (GBP) is drifting from last week’s highs toward 1.33 support, with domestic risk limited until Friday’s data releases, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

BoE commentary turns slightly hawkish ahead of data

"The pound has also been trading within a tight range, albeit with a slightly more defensive bias and a gentle bearish drift from last week’s highs in the upper 1.33s to current support around 1.33. Domestic risk remains limited ahead of Friday’s trade and industrial production figures, and the latest comments from the BoE have leaned somewhat hawkish, balancing dovish communication earlier this week."

"MPC member Lombardelli has expressed concerns about upside risks to inflation and reiterated prior BoE comments on the inflationary impact of capacity constraints. The BoE’s next meeting is on Thursday, December 18 and markets are pricing a 92% chance of a 25bpt cut."

"However, media appear to be throwing cold water on the assumption that a cut will be delivered, and major banks also appear to be lifting their terminal rate, nudging up their forecast for the BoE’s rate path."

• EUR/GBP softens within its one-week range amid a subdued tone across FX markets.
• BoE rate cut expectations build ahead of next week’s meeting, limiting upside in GBP.
• ECB officials adopt a firmer tone, supporting speculation that the next policy move could be a hike.

The Euro (EUR) edges lower against the British Pound (GBP) on Wednesday, with EUR/GBP oscillating within its familiar one-week range as caution dominates broader FX markets ahead of the Federal Reserve’s (Fed) interest rate decision later in the day.

At the time of writing, the cross is trading near 0.8730, easing after touching an intraday high of 0.8751 during early European trading hours.

With the Fed poised to cut rates, traders are waiting for fresh guidance on the outlook for 2026. Any adjustment in the policy path could reshape global rate differentials and broader market sentiment, creating spillover effects across major currency crosses, including EUR/GBP.

At the same time, attention is gradually turning toward next week’s monetary policy meetings from the European Central Bank (ECB) and the Bank of England (BoE).

Markets widely expect the BoE to cut rates at its upcoming meeting. BoE commentary this week, however, reveals internal divergence. Policymaker Alan Taylor said he expects UK inflation to fall back to the 2% target in the near term, which he believes creates scope for additional rate reductions.

Deputy Governor Clare Lombardelli struck a more cautious tone, noting that some upside risks to inflation remain and arguing that the pace of cuts may need to slow as the BoE nears the end of its current cutting cycle.

In the eurozone, the ECB is expected to keep all three key policy rates unchanged next week. Even so, speculation is building around the possibility of a rate hike next year after a series of firmer remarks from ECB policymakers.

Governing Council member Gediminas Simkus said earlier on Wednesday that there is no need to change rates while inflation is running at the target. His comments were followed by a Bloomberg interview published Monday, in which Isabel Schnabel said she is “rather comfortable” with market expectations that the ECB’s next move could eventually be a hike.

Adding to the recent commentary, ECB President Christine Lagarde said on Wednesday that the eurozone economy is showing signs of resilience and that the Governing Council may upgrade its growth projections at the December meeting.

She noted that the current policy stance remains appropriate given inflation’s sustained progress toward the target, while also emphasising that the ECB will continue to rely on incoming data to determine the timing of any future adjustment.

The Euro (EUR) is extending its latest consolidation and trading within a tight range in the mid/lower-1.16 area, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

ECB policy divergence supports bullish Euro outlook

"The outlook for relative central bank policy remains bullish for the EUR, as comments from ECB President Lagarde have hinted to bullish revisions to the central bank’s forecast. The ECB will publish its latest economic projections at next Thursday’s meeting, where a widely anticipated hold is likely to be paired with a modestly hawkish tone. A growing number of ECB policymakers have recently shifted their communication from neutral, introducing upside risk to the rate path."

"Short-term rates markets have adjusted, with swaps now pricing a 50% chance of 25bpt hike by December 2026. Near-term risk lies with the Fed, where a dovish cut will only serve to underscore the divergence in Fed/ECB policy. We also note the reemergence of political uncertainty in France, where the government is once again struggling to adopt its budget. French-German yield spreads are slightly wider on the day, but well within the extended levels (>80bpts) observed in Aug/Sept."

"The EUR has failed to extend the bullish break of its recent range and has traded somewhat defensively over the past several sessions. The 50 day MA (1.1604) appears to be providing some support, and momentum remains marginally bullish with an RSI that is softening modestly while remaining in the mid-50s. We remain bullish absent a break back below the 50 day MA and look to a near-term range bound between 1.16 and 1.17."