CAD in holding pattern ahead of rate decision

Key Movers

The US dollar surged on Tuesday as stock markets traded in the red across the globe. The US dollar Index (DXY) was in the green against every major peer. Today, the USD holds steady with no new gains as European Central Bank (ECB) member Klaas Knot said that a surprise hike might still come in September, making markets pare back bets of no hikes to a 50-50 valuation in favour of a stronger euro and weaker greenback.

The euro pushed back against the greenback’s strength today, backed by surprise hawkish comments from ECB’s Knot in early morning trading in Europe. Knot warned markets that they are underestimating the possibility of another hike from the ECB. This triggered a pop in the euro and saw the greenback take a slight step back. The Euro accelerated its recovery versus the USD during the European afternoon on Wednesday, lifting the EUR/USD to daily peaks near the 1.0750 region. After progressing to fresh six-month tops just below the 105.00 figure in the previous session, the Greenback faces some selling pressure and recedes to the 104.80-104.70 band.

The UK’s economy is expected to weaken further as the Bank of England (BoE) is preparing to raise interest rates further to sharpen monetary tools against a persistently high core Consumer Price Index (CPI). Investors anticipate a quarter percent interest rate hike from the BoE on September 21, which will push interest rates to 5.50%. Meanwhile, investors await the S&P Global Construction Purchasing Manger’s Index (PMI) for August.