- The USD / CAD moves slightly to more than 1,3800 before the Fed monetary policy decision.
- The Fed should maintain stable borrowing rates in the range of 4.25% to 4.50%.
- Investors are waiting for Canadian employment data for April, which will be published on Friday.
The USD / CAD pair amounts to almost 1,3,800 during European negotiation hours on Wednesday. The pair of Loonie wins while the US dollar (USD) nods before the interest rate decision of the Federal Reserve (Fed) at 6:00 p.m. GMT.
The US dollar index (DXY), which follows the value of the greenback against six main currencies, draws more than 99.50.
Merchants are increasingly convinced that the Fed will maintain stable interest rates in the current range of 4.25 to 4.50% for the third consecutive meeting. The reasoning behind the dominant bets fed with companies is an increased uncertainty on American economic prospects under the direction of President Donald Trump.
The owners of American companies have indicated that they would transmit the impact of higher prices imposed by President Trump on consumers, a scenario that will result in a resurgence of consumer inflation.
The feeling of the market becomes favorable to actions around the world, the United States (United States) and China have accepted commercial talks this week in Switzerland. However, it is unlikely that the trade agreement between them will occur soon, because the American secretary of the Treasury, Scott Bessent, said that the meeting will concern more de -escalation of the trade war before moving forward. “My feeling is that it will be a question of de -escalation, not the Big Trade agreement,” said Bessent, according to CNBC.
Meanwhile, a high stake press conference between US President Trump and Canadian Prime Minister Mark Carney increased trade tensions between the two nations. Trump qualified Canada as “the greatest client” and said the nation is based strongly on trade with Washington.
Economically, investors will pay special attention to Canadian labor market data for April, which will be published on Friday. Employment data will considerably influence the perspectives of the Canadian dollar (CAD).
US dollar FAQ
The US dollar (USD) is the official currency of the United States of America and the “de facto” currency of a large number of other countries where it is in circulation alongside local tickets. It is the most negotiated currency in the world, representing more than 88% of all global turnover, an average of 6.6 billions of dollars of transactions per day, according to data from 2022. After the Second World War, the USD took over from the British book as a global reserve currency. For most of its history, the US dollar was supported by gold, until the Bretton Woods agreement in 1971 when the Order stallion left.
The single most important factor on the value of the US dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to reach price stability (controlling inflation) and promoting full employment. Its main tool to achieve these two objectives is to adjust interest rates. When prices are increasing too quickly and inflation is greater than the 2% target of the Fed, the Fed will increase rates, which helps the USD value. When inflation falls below 2% or the unemployment rate is too high, the Fed can reduce interest rates, which weighs on the greenback.
In extreme situations, the federal reserve can also print more dollars and promulgate a quantitative relaxation (QE). QE is the process by which the Fed considerably increases the credit flow in a blocked financial system. This is a non -standard political measure used when credit has dried up because the banks will not lend themselves (by default of the fear of the counterpart). This is a last appeal when the simple drop in interest rates is unlikely to achieve the necessary result. It was Fed's weapon of choice to combat the credit crisis that occurred during the great financial crisis in 2008. It implies the Fed Print more dollars and use them to buy US state bonds mainly from financial institutions. QE usually leads to a lower US dollar.
The quantitative tightening (QT) is the opposite process by which the federal reserve ceases to buy obligations from financial institutions and does not reinvest the principal of the obligations it holds in new purchases. It is generally positive for the US dollar.
