Quick Facts
Forex Today: Markets Await Fed and Bank of Canada Decisions – 29 January 2025
As the global financial markets wait with bated breath for the outcomes of the Federal Reserve and Bank of Canada’s monetary policy decisions, the overnight sessions saw a mix of reactions. The US technology sector, which had been reeling from the recent DeepSeek shock, rebounded sharply, pushing the NASDAQ 100 and S&P 500 indices to make significant gains. Meanwhile, the Australian inflation rate came in slightly lower than expected, pointing to a potential reversal of the country’s monetary policy trajectory.
A Wait-and-See Approach for the Fed
The Federal Reserve is expected to hold interest rates steady for the time being, maintaining its current hawkish stance. Despite the recent slowdown in the US economy, Fed Chair Jerome Powell has repeatedly emphasized the need for caution, citing concerns about inflation and the need to prevent asset bubbles. The market consensus is that the Fed will indeed keep rates unchanged, but the real question is what happens next. Will we see another rate hike in the near future, or will the Fed adopt a more dovish approach?
Bank of Canada to Cut Rates by 0.25%
In contrast, the Bank of Canada is widely expected to cut interest rates by 0.25% later today. The Canadian economy has been struggling to recover from the impact of the pandemic and recent geo-political tensions, leading to a sharp decline in inflation. The BoC has already cut rates twice in recent months, and this latest move will likely bring the benchmark rate down to 0.5%. The cut is expected to support the Canadian recovery, boost inflation, and stabilize the currency.
Technology Sector Rebounds
The US technology sector, which had been reeling from the recent DeepSeek shock, bounced back sharply overnight. The NASDAQ 100 index surged by over 2%, while the S&P 500 index jumped by over 1.5%. The rebound was largely attributed to comments from tech giants such as Apple and Amazon, which provided investors with some reassurance about their financial prospects. The sector’s resilience is a welcome development for market participants, as it suggests that the economy is still capable of supporting growth.
Australian Inflation Rate
The Australian Consumer Price Index (CPI) came in slightly lower than expected, measuring 0.2% in Q4 2024. While the headline figure remained elevated at 3.4% year-on-year, the underlying rate, which strips out volatile items, fell to 2.8%. The soft inflation reading has sparked hopes that the Reserve Bank of Australia (RBA) may reconsider its tightening cycle. If the RBA were to cut rates, it could have significant implications for the Australian dollar and global markets.
Implications for the Forex Market
The decisions by the Fed and BoC will have significant implications for the Forex market. A rate cut by the BoC could lead to a decline in the Canadian dollar, potentially supporting currencies such as the US dollar and the euro. Meanwhile, a decision to hold rates steady by the Fed could have opposite consequences, potentially supporting the dollar and weighing on the euro and other currencies.
Market Outlook and Key Events
In the coming days, the markets will be focused on several key events. Apart from the Fed and BoC decisions, investors will be keenly tracking the GDP growth data from the Eurozone and the UK. The data will provide important insights into the state of the global economy and the impact of the ongoing supply chain disruptions. Additionally, the Chinese New Year celebrations will soon be underway, which could lead to a slowdown in trading activity and volatility in the coming days.
