- USD/CAD moves slightly higher to near 1.3800 ahead of the Fed’s monetary policy decision.
- The Fed is expected to keep borrowing rates steady in the range of 4.25%-4.50%.
- Investors await the Canadian employment data for April, which will be released on Friday.
The USD/CAD pair rises to near 1.3800 during European trading hours on Wednesday. The Loonie pair gains as the US Dollar (USD) edges up ahead of the Federal Reserve’s (Fed) interest rate decision at 18:00 GMT.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, ticks higher around 99.50.
Traders are increasingly confident that the Fed will keep interest rates steady in the current range of 4.25-4.50% for the third meeting in a row. The reasoning behind firm Fed dovish bets is heightened uncertainty over the US economic outlook under the leadership of President Donald Trump.
US business owners have indicated that they will pass on the impact of higher tariffs imposed by President Trump to consumers, a scenario that will result in a resurgence in consumer inflation.
Market sentiment turns favorable for equities across the globe as the United States (US) and China have agreed to trade talks this week in Switzerland. However, the trade deal between them is unlikely to happen anytime soon, as US Treasury Secretary Scott Bessent has indicated that the meeting will be more about de-escalating the trade war before moving forward. “My sense is that this will be about de-escalation, not about the big trade deal,” Bessent said, according to CNBC.
Meanwhile, a high-stakes press conference between US President Trump and Canadian Prime Minister Mark Carney has escalated trade tensions between the two nations. Trump referred to Canada as merely the “largest client” and indicated that the nation relies heavily on trade with Washington.
On the economic front, investors will pay close attention to the Canadian labor market data for April, which will be released on Friday. The employment data will significantly influence the outlook of the Canadian Dollar (CAD).
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
BRANDED CONTENT
Choosing a broker that aligns with your trading needs can significantly impact performance. Our list of the best regulated brokers highlights the best options for seamless and cost-effective trading.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD retreats from multi-year tops past 1.1600
On Thursday, the EUR/USD extended its uptrend and reached its highest level since November 2021, north of 1.1600 the figure. The marked advance in the pair came in response to the pronounced decline in the US Dollar, aggravated after poor results from the US labour market and softer producer prices.
GBP/USD keeps the bid bias intact around 1.3600
Following an initial dip to the 1.3520 zone, the GBP/USD regained traction and traded over the 1.3600 mark on Thursday, building on Wednesday’s gains. The US Dollar (USD) is under heavy selling pressure following weaker inflation data and disappointing jobless claims number.
Gold remains strong around $3,400
Gold maintains its weekly rebound well in place, now trading near the $3,400 mark per troy ounce following a strong retracement in the US Dollar, declining US yields across the curve and growing geopolitical tensions.
Cardano Price Forecast: Whales acquire 310 million ADA amid potential triangle breakout
Cardano (ADA) shows weakness as it reverses from an overhead trendline of a triangle pattern. The altcoin edges lower by over 1% at press time on Thursday, fueling a steeper correction in its Open Interest. Amid weakness, Cardano whales have acquired 310 million ADA tokens so far this month, projecting increased confidence as the triangle pattern nears resolution.
US tariffs here to stay, trade deals ‘largely symbolic’
Despite legal challenges to IEEPA tariffs, US trade policy remains firm. Tariffs on steel and aluminium have doubled, and new sectoral tariffs are expected. Trade deals may emerge, but most will be symbolic. Effective tariff rates will stay high throughout 2025.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.