Yesterday The Bank of Canada became the 2nd Central Bank after The Swiss National Bank to implement their first rate cut and this came after six consecutive meetings of leaving rates on hold. Their rates have been reduced by 25 basis points, down from the highs of 5% to 4.75%.
Justifying the reasons for their first rate cut, Bank of Canada governor Tiff Macklem stated that the central bank have come a long way in their fight against inflation, and although they are not quite there in terms of the 2% target, they are feeling extremely confident that over the coming months inflation will naturally fall closer to the 2% area. This is mainly due to a pick up in the supply of workers which in turn has allowed for a drop in wages and the hope is then over time prices should follow.
Moving forward, further rate cuts is certainly a possibility, with Macklem again stating that if Inflation continues to ease, and confidence amongst policy members grow in terms of inflation reaching the 2% level then it would be reasonable to see further rate cuts over the coming months. Of more importance to the FX markets will be the size of the next cut and the reasons behind it.
Sticking with Interest Rates, we have the European Central Banks decision this afternoon at 13:15 GMT. It’s widely expected that the central bank will also implement their first rate cut and again we should see a 25 basis point cut. Impacts from this on the currency rates should be fairly limited as this is pretty much a foregone conclusion, however the press conference 30 minutes later will be of more importance as any guidance in regards to a future rate cut and again the size of the cut could well see The Euro lose ground against its major peers.
We round the week off tomorrow with a basket of high importance data releases, with Quarterly GDP figures for Europe and employment figures for both Canada & The U.S. With The Federal Reserve holding their interest rate meeting next Wednesday, tomorrow’s employment release will be of huge importance and could well see some volatile movement on the currency markets.
