Bank of Canada maintains key interest rate at 0.50%

Today's Highlights

• Bank of Canada maintains key interest rate at 0.50%

• Federal Reserve’s Beige Book reported modest economic expansion

• European Central Bank rate decision later today

Current Market Overview

The recent slowdown in US Dollar gains has been checked following comments yesterday from Federal Reserve Chair Janet Yellen who said that it "makes sense" to gradually raise the interest rate.  She also warned that "waiting too long to begin moving toward the neutral rate could risk a nasty surprise down the road - either too much inflation, financial instability, or both." More importantly, she stated that this scenario could potentially mean a forced rapid increase in interest rates, which “could push the economy into a new recession." Yellen also pledged to "closely follow" with economic policies and factor them into the Federal Reserve's policies.

Also released yesterday was the Federal Reserve's Beige Book economic report, showing that the economy continued to expand modestly through the end of 2016. There were signs of tightening in US labor markets and "district reports cited widespread difficulties in finding workers for skilled positions; several also noted problems recruiting for less-skilled jobs" as well as most districts noting an increase in wage pressures.

The Bank of Canada left their key interest rate unchanged at 0.50% as expected yesterday. The Bank of Canada Governor, Stephen Poloz, commented that "a rate cut remains on the table". And he noted that Canada’s central bank has “room to manoeuvre if downside risks materialize,” highlighting that there is particular uncertainty around trade policies. The markets took Poloz's comments as a message that the Bank of Canada will not follow the US Federal Reserve to hike interest rate this year.

Overnight we have seen an improvement in New Zealand business data and a rise in Australian Employment numbers.

The European Central Bank rate decision and press conference will be in focus today. The central bank is widely expected to leave monetary policies unchanged.  Eurozone inflation has risen since December, as economic data has been supportive.

UK Prime Minister, Theresa May, is due to address global leaders at the World Economic Forum in Davos, where she will outline her plans for Britain’s exit from the European Union.  She is also expected to warn about those "left behind" by globalisation and to say that the global elites need to work to tackle the backlash against globalisation, liberalism, and free trade.