Written by the Market Insights Team
Holding pattern for the Loonie
Kevin Ford – FX & Macro Strategist
The FOMC press release and Chair Powell’s press conference yesterday delivered critical insights that set the tone for market reaction. Powell highlighted the challenges posed by tariffs, noting their potential to delay progress in curbing inflation, while also emphasizing the difficulty of gauging the real impact of trade and fiscal policies on economic data. He reiterated that it remains too soon to draw concrete conclusions on how fiscal austerity and tariffs will shape inflation and growth. Crucially, Powell distinguished between tariff-driven and non-tariff inflation, with both influencing Core PCE and Core PCI projections. Adding to the cautious outlook, the FOMC lowered its GDP projections. Despite FOMC’s latest projections suggesting a shift towards stagflationary dynamics, markets maintained a positive stance, as major U.S. equity indices rallied in response to the Fed’s confirmation that two rate cuts are still on the table this year, offering a silver lining to an otherwise complex economic narrative.
The USD/CAD has been remarkably stable throughout this week. Navigating a drama-free tariff environment, hotter-than-expected CPI data, and the post-Fed meeting boost, the pair has been trading within a range of 1.439 to 1.427. In the last few hours, it’s pushed higher due to dollar strength in the back of higher for longer U.S. rates.
The Canadian dollar’s implied volatility remains the lowest among G10 currencies, averaging just 6.7% since 2020—well below the G10 average of 9.4%—and signaling a notable calm amidst global economic uncertainty. This steadiness is expected to persist until April 2nd, when the U.S. unveils critical trade policy decisions and Canada contemplates possible retaliatory measures. In the meantime, the pair is forecast to remain range-bound between 1.41 and 1.45, reflective of a market adopting a wait-and-see approach.
For Canada and the Loonie, the lingering question revolves around the longevity of U.S. tariffs and the country’s potential response. With USMCA/CUSMA renegotiations until mid-2026, Canada’s immediate priority lies in securing tariff exemptions quickly and effectively. There’s also growing speculation about the role critical minerals might play in these discussions, given the heightened interest from the U.S. administration. The evolving trade landscape will undoubtedly serve as a critical focal point for both economies, and the Loonie in the weeks ahead.
Best Fed day for stocks since July ‘22
Boris Kovacevic – Global Macro Strategist
Markets roared back to life on Wednesday after the Federal Reserve (Fed) kept rates unchanged and maintained its forecast for two rate cuts this year, while optimism grew around a potential ceasefire in Ukraine. Equities surged, with the S&P 500 on track for its best Fed decision day since July 2022, and the Nasdaq soaring as tech stocks led the charge.
The Fed’s decision to slow the pace of balance sheet reduction added to the positive sentiment, fueling hopes of higher liquidity ahead. While Chair Jerome Powell emphasized uncertainty around the economic outlook, especially regarding tariffs and their impact on inflation, markets chose to focus on the dovish tilt in balance sheet policy vs. the more hawkish shift in the dot plot. Treasury yields declined, with the two-year note falling below 4% as traders reassessed the Fed’s path forward. Still, Powell’s statement that economic uncertainty has increased suggests that the central bank remains data-dependent, and future policy moves will hinge on how inflation and employment trends evolve in the coming months.
Meanwhile, geopolitical developments added to market optimism. President Trump and Ukrainian President Zelenskiy signaled progress toward a ceasefire, with Ukraine agreeing to halt strikes on energy infrastructure as an initial step in negotiations. Trump described his latest call with Zelenskiy as “very good,” while US officials highlighted growing cooperation on air defense support.
The news helped sustain the risk-on mood, adding to the dollar’s volatility. The greenback initially weakened as risk appetite surged, but it later rebounded. The Greenback remains in a downtrend, having shed nearly 6% from its January peak, but the combination of Fed uncertainty and geopolitical risks continues to create pockets of demand. With the Fed’s decision behind us, markets will now turn their attention to economic indicators to gauge whether the optimism in risk assets can be sustained or if volatility will make a swift return.
Euro slips below $1.09
Boris Kovacevic – Global Macro Strategist
The euro’s rally lost steam on Wednesday as EUR/USD recorded its worst daily drop in March, slipping back below the $1.09 level. While the pair remains on track for a third consecutive weekly gain, broader market sentiment and developments in the US took center stage, overshadowing any euro-specific drivers.
The Fed’s decision to keep rates unchanged and maintain its forecast for two rate cuts this year initially fueled a risk-on rally, but a stronger dollar later emerged as traders reassessed the Fed’s cautious stance. Meanwhile, signs of progress toward a ceasefire in Ukraine added another layer of complexity, bolstering sentiment but also creating fresh uncertainty over Europe’s economic and energy outlook.
German bond yields edged lower as investors digested the Fed’s more measured approach, but rising expectations for a hawkish hold from the European Central Bank in April continue to provide underlying support for the euro. With Germany’s fiscal expansion still in focus and set to pass key parliamentary hurdles, the bloc’s growth prospects are looking more stable, which could help limit downside risks for the single currency.
However, rising trade tensions with the US remain a headwind. Trump’s latest tariff threats against European wine and industrial goods, along with his renewed criticism of the EU’s trade practices, have cast a shadow over the euro’s resilience. For now, EUR/USD remains caught in the broader tug-of-war between a patient Fed and European fiscal optimism.
BoE priced to stay on hold
George Vessey – Lead FX & Macro Strategist
The British pound continues to flirt with the $1.30 handle versus the US dollar, but has reclaimed €1.19 against the euro as traders await in anticipation the Bank of England’s (BoE) rate decision today. The UK labour market report published this morning largely came in line with estimates, with wage growth still elevated and the unemployment rate steady at 4.4%.
The BoE’s well-established cut-hold tempo (one cut per quarter) means it’s highly unlikely the Bank rate will move from 4.5% today. We don’t’ expect a major market reaction either because an unchanged decision is fully expected by markets. However, eyes will be on the vote split amongst policymakers, particularly if Alan Taylor joins the previous dissenters and votes for another cut.
Perhaps the biggest shock in February was the 7-2 vote split which saw Catherine Mann switch from being the most hawkish member to among the most dovish and she joined Swati Dhingra in voting for a larger 50 basis point cut. It’s therefore likely these two will dissent again today, but Mr Taylor could join the party given he voted for back-to-back cuts in December and has since cited that weak demand was the dominant factor in the inflation outlook. However, most of the committee seem concerned that supply weakness will cause pay growth and inflation to remain higher for longer. Indeed, private sector wage growth remains above 6%, while services inflation is bouncing around 5%, which complicates the BoE’s job amidst a stagnating economy. So, for now, we don’t think that we’ve seen enough in the data that would warrant a dramatic shift in the bank’s guidance. The BoE will likely stick to its cautious approach, also weighing the evolution of global shocks such as trade tariffs or developments in the Middle East that could impact some prices.
The UK budget event later this month might be the bigger risk to the pound as Chancellor Rachel Reeves may either slash spending, raise taxes or risk unnerving the gilt market. As such, the short-term outlook for the pound might be skewed to the downside in our opinion, but global uncertainties make for a low conviction.
Stocks rebound to top 20% of 7-day range
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: March 17-21
All times are in ET
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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.