USD/CAD weakens following BoC rate hike

Key Movers

The US dollar index (DXY) trades near 100.110 as it falls towards 100, reaching its lowest level in more than a year. This drop was prompted by lower-than-expected US producer and consumer price figures, which fueled speculations that the Federal Reserve might be approaching the conclusion of its cycle of increasing interest rates. In June, the annual inflation rate in the US slowed down to 3%, falling below the market's anticipated 3.1%, while the core inflation rate further eased to 4.8%. Moreover, producer prices experienced a 0.1% increase, falling short of the forecasted 0.2% increase. Although the Federal Reserve is still expected to raise rates by 25 basis points (bps) this month, traders have reduced their expectations for any additional rate hikes this year. Jobless claims for the week ending on July 8 decreased by 12,000 compared to the previous week, reaching a total of 237,000. This figure was significantly lower than the market's anticipated number of 250,000. The outcome aligns with recent data that highlights the persistently tight labor market in the US, thereby lending support to the probability of a 25 bps hike in the upcoming meeting of the Fed.

The euro solidified its gains above 1.10 trading near 1.1190 against the USD, reaching its highest level since February 2022. Investors believe the European Central Bank (ECB) still has tasks to accomplish in addressing inflationary pressures within the Eurozone, despite indications of economic growth slowdown and easing inflation across the region. In June, inflation in the Eurozone declined to a 17-month low of 5.5%, but the core rate remained significantly higher than the ECB's target of 2%. Presently, interest rates in the Eurozone are at 3.5%.

The GBP/USD soared above the 1.3 level for the first time since April 2022 as it trades near 1.3100, attracting investors due to its expanding interest rate advantage over other developed economies. The indication of cooling inflation in the US raised expectations that the Federal Reserve's policy tightening might be approaching its conclusion. Month-over-month GDP data released for the UK today showed the British economy is experiencing a contraction of 0.1%, in contrast to the 0.2% growth seen in April and falling short of expectations for a larger 0.3% decline.