BoC lifts rate to 1.25%, retains cautious optimism

On Wednesday, the Canadian Dollar tumbled as low as 1.2521 against the greenback after the Bank of Canada (BoC) hiked interest rates and indicated confidence in the outlook for the economy, but sounded a cautious tone on the future of NAFTA. The Central Bank raised its benchmark interest rate by 25 basis points to 1.25%, as expected, after recent data showed strong job growth and firmer inflation. However the bank’s worries on prospects for NAFTA dented expectations for additional rate hikes. Canada, which sends about 75% of its exports to the United States, is increasingly convinced US President Donald Trump will soon announce that the United States intends to pull out of NAFTA.

Meanwhile, the British Pound steadied after surging to $1.3941, the highest levels since Britain’s vote to leave the European Union in 2016, as traders took profits and awaited the latest developments in Brexit negotiations. Better-than-expected economic performance of the British economy and hopes that Britain will soon agree a transition deal with Brussels are supporting the Sterling.

Yesterday, the Euro nursed losses, having retreated from a three-year high against the US Dollar after comments from European Central Bank (ECB) policymakers this week hinted concerns over the currency’s recent strength. The common currency had slipped yesterday as ECB official Ewald Nowotny said that the Euro’s recent strength against the Dollar is “not helpful,” which encouraged a bout of profit-taking before a policy meeting next week.