The EUR/CAD currency pair experienced a significant decline during Tuesday's European session, relinquishing its recent intraday gains and dipping below the 1.0500 mark. This downturn followed an unsuccessful attempt to sustain a four-day upward momentum beyond the crucial resistance level of 1.5050. Investors are now keenly observing the forthcoming Canadian Consumer Price Index (CPI) data for December, scheduled for release at 13:30 GMT. The data is expected to play a pivotal role in shaping market expectations regarding the Bank of Canada's future interest rate decisions amidst growing global economic uncertainties.
In the background, US President Donald Trump's announcement of 25% tariffs on Canada and Mexico has added another layer of complexity to the economic outlook. These tariffs, compounded by his tariff hikes on the Eurozone, are poised to exert further pressure on already fragile economic conditions in these regions. Such measures have fueled speculation among traders that the European Central Bank (ECB) may gradually lower interest rates over the next four policy meetings to mitigate economic disruptions.
The Canadian economy, being a major oil exporter to the US, faces additional challenges as Trump's plans to increase strategic oil reserves could adversely affect Canada's export sector. This scenario coincides with soft US inflation data and ongoing uncertainty surrounding Trump's tariff initiatives, leading to conjectures that the Bank of Canada (BoC) may opt for more substantial interest rate cuts than initially anticipated. Market analysts foresee a potential reduction of 50 basis points, doubling the usual pace.
Meanwhile, a Reuters poll conducted from January 10 to 16 indicates near certainty that the BoC will implement a 25 basis point cut, bringing interest rates down to 3%. This anticipation comes as the BoC has already reduced interest rates by 175 basis points in 2024 in response to evolving economic conditions. Investors are particularly attentive to the upcoming CPI data, which is anticipated to show a year-over-year increase of 1.8% for December. Month-over-month, price pressures are projected to have contracted by 0.4%, following a flat performance in November.
Adding to the complex economic landscape, the ILO Unemployment Rate in the UK rose to 4.4% over the three months leading up to November, indicating potential labor market challenges amidst broader economic uncertainties.
It is essential to note that this article, authored by FXStreet, does not serve as investment advice, as neither the author nor FXStreet are registered investment advisors. The information provided aims to inform readers of current market conditions and potential future developments without recommending specific investment actions.