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USD/CAD higher after Fed hike, BoE on hold

Posted on: June 15, 2017

In response to the Fed sentiment yesterday, we’ve seen a risk-off approach in markets. USD is trading a little firmer this morning. EUR opened in London below the support of 1.12 and continues to face pressure. BoE kept rates on hold as expected.

USD mildly strengthened following the FOMC policy meeting as Yellen suggested weak inflation data won’t persist amid a tightening labor market. As expected, rates increased by 25bp and there was a release on updated monetary policy normalization, including the operational details on winding down the Fed balance sheet. The program includes a reduction of Treasury holdings capped at $6 billion per month, and increasing by $6 billion increments every three month over a 12-month period until it reached $30 billion per month. For MBS, the cap will be $4 billion per month and then rising by $4 billion at quarterly intervals until it $20 billion per month. Yellen seems pretty contempt about inflation and largely attributed the current levels to cellphone bills and drug prices. The FOMC projected one more rate hike this year and three into 2018 if the US economy continues on a path towards sustainable growth. USD/CAD is trying to test 1.3284.

EUR/USD declined as participants faced crossfire on the back of the dollar rally, while also facing weakness following the BoE meeting. The BoE delivered the decision to keep rates on hold on the back of a split 5-3 vote (7-1 vote expected), which drove GBP/USD to 1.2795 highs, reversing Cable’s losses after weak retail sales data. The economy is noticeably getting softer given the fall in wages, and it appears that the only source of inflation would be a lower sterling. GBP/USD is currently in the range of 1.2740-1.2750.

Tomorrow we have the BoJ decision, where participants expect that no changes will be seen in its target rates and asset purchases. At home, the CREA reported that Canadian resale's dropped 6.2% in May from April as Toronto sales plunged 25%. This was the first full month of data after Ontario’s housing measures were put into place to cool the Toronto housing market.

  • Yesterday’s NA Range: 1.3165 – 3271
  • Asia Range:1.3226 – 1.3251
  • London Range: 1.3235 – 1.3284

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