USD/CAD faces resistance

Key Movers

Recent economic data and the Federal Reserve’s monetary policy outlook dropped demand for the US dollar. The US Dollar Index (DXY) fell below 102 this morning, approaching its lowest point in the last five months. Revised figures point to slower growth in the US economy, raising concerns about economic expansion. Despite this, Personal Consumption Expenditures (PCE) data in Q3 increased less than expected. This report emphasized a tight market, with weekly jobless claims staying near two-month lows. Investors are now anticipating the November core PCE index, with a projected 0.2% month-over-month increase and an expected annual rate decline to 3.3%, the lowest since 2021. Market projections suggest a 70% likelihood of the Fed implementing the first rate cut in March.

The euro traded near 1.099 this morning as investors anticipated a decrease in interest rates in the Eurozone. On Tuesday, Francois Villeroy de Galhau, the Governor of the Bank of France (BoF), proposed a rate reduction next year, with the goal of achieving a 2% inflation rate by 2025 at the latest. In contrast, Greece's Yannis Stournaras took a more stringent position, insisting that inflation should stay below 3% by mid-next year before considering a reduction in borrowing costs. Despite a November decrease to 2.4%, economists foresee the possibility of inflation picking up later this year.

The pound experienced a decline of over 0.5%, falling below 1.2680 amid growing expectations of imminent interest rate cuts. The recent Consumer Price Index (CPI) report revealed a deceleration in UK inflation to 3.8%, the lowest since September 2021 and below the anticipated 4.4%. The core inflation rate also dropped to 5.1%, the lowest since January 2022 and below the forecasted 5.6%. Consequently, traders are speculating that the Bank of England (BoE) will cut rates in the coming year.