USD: Fed holds, USD remains under pressure
As expected, the Fed held interest rates steady at 3.5%–3.75% in a 10-2 vote, marking the first pause since July.
The decision was punctuated by dissent from Governors Waller and Miran, who both favored a 25-bps cut. Waller’s shift is particularly critical for markets given his status as a Fed chair contender; his break from the majority raises questions about whether the move was driven by evolving economic data or shifting political considerations.
The policy statement took a more hawkish tone, upgrading economic growth to a “solid pace” and noting that the unemployment rate has “shown some signs of stabilization.” This signaling that rates will likely remain on hold for longer has helped a US Dollar bounce at a critical support level.
Also on Wednesday, Treasury Secretary Scott Bessent stepped in to steady the ship on Wednesday, reaffirming the U.S. commitment to a “strong dollar” after President Trump’s recent comments triggered a currency slide. Speaking with CNBC, Bessent explained that a robust greenback is the natural result of sound economic fundamentals—essentially arguing that if the administration gets the policy right, the investment will follow. He also shut down rumors of market manipulation, stating “absolutely not” when asked if the U.S. was intervening to sell the dollar against the yen. While his reassuring tone sparked an initial rebound, the dollar’s gains began to taper off by Thursday morning, the negative sentiment around the greenback persists as the risk of a sell-off breakout remains high.
CAD: Powell stays above politics
I understand why Tiff Macklem feels compelled to address the turmoil in U.S. trade policy, but hearing him closely track Prime Minister Mark Carney’s Davos framing is jarring. Yesterday delivered a study in contrasts between the Bank of Canada and the Federal Reserve. Jerome Powell effectively built a moat around the Fed’s independence—going so far as to advise his successor to “stay out of elected politics”—while Macklem sounded as if he were harmonizing with Ottawa’s message. It’s a strange look when Powell is publicly re‑asserting distance from politics and drawing applause for it, even as the Bank of Canada leans into the political noise.
The uncertainty created by U.S. tariff threats is real, and the drag from that uncertainty is showing up in the data. But Canadians don’t need their central banker to narrate the prime minister’s talking points. When the Bank frames Canada’s sluggish outlook primarily as a byproduct of Washington’s tariff flip‑flops, it risks eroding the perception of neutrality that is essential to monetary credibility. Around the world, central bank independence is under renewed scrutiny; in that context, the optics of message coordination rather than a strictly orthodox defense of the mandate feel misjudged.
The Bank’s own numbers are cool to the touch. Growth is projected at 1.1% this year and 1.5% in 2027, and officials concede that forecast risks are larger than usual. That’s hardly a comfort when the trade backdrop is shifting, CUSMA’s review looms, and businesses are still re‑routing supply chains. “Elevated uncertainty” is the Bank’s phrase, and it cuts both ways for policy.
After snapping back toward 1.36, the USD/CAD has pushed into a new 15-month low at 1.3510 , and with realized and implied volatility picking up around familiar resistance, the Loonie’s upside looks dependant of a clear sell-off in the US Dollar.
EUR: Technicals cool off, bullish bias unchanged
In the build‑up to the Fed’s meeting, the EUR/USD shed nearly 1% yesterday. The move lower was largely inevitable. Technicals were overstretched, with the Relative Strength Index, a key momentum indicator, sitting firmly in overbought territory. The lack of fundamental support from rate‑spread expectations also contributed to the decline. Buying impetus may have waned, also, as investors assessed the risks of a stronger euro in relation to the ECB’s policy outlook. In 2025, there were discussions that a stronger euro could prompt officials to consider the possibility of another cut should elevated levels persist, given that a strong euro is a key contributor to inflation undershooting targets.
We believe it is premature for the ECB to re‑enter that conversation, as policymakers may prefer to wait and see how euro strength evolves. We remain skeptical that levels above 1.20 will be re‑explored in the short to medium term. Yet speculation that the ECB could find itself cornered in the future may have contributed to capping upside above 1.2100. Yesterday’s remarks from ECB official Villeroy that the euro is the “element that will guide policy,” along with German Chancellor Merz’s comment that he will be watching the euro exchange rate with concern, underscored how sensitive policymakers remain to currency strength and reinforced the resistance to further EUR/USD gains. Nonetheless, We expect the pair to close the week above the 1.19 mark.
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
