What are the main events for today?

The European session will once aga just a couple of non market moving releases. The focus today is on the BoC and FOMC policy decisions.

14:45 GMT/09:45 ET – Bank of Canada Policy Decision

The BoC is expected
to cut interest rates by 25 bps and bringing the policy rate to 3.00%. As a
reminder, the BoC cut interest rates by 50 bps at the last policy meeting but dropped the line saying “if the economy evolves broadly in line with
our latest forecast, we expect to reduce the policy rate further”, which
suggests that we reached the peak in “dovishness” and the
central bank will now switch to 25 bps cuts and will slow the pace of easing.

The recent Canadian Employment report was much stronger than expected, while the CPI report came mostly in line with forecasts showing once again
that the central bank got inflation back under control.

The CAD
hasn’t responded much to economic data recently as the focus switched to
Trump’s tariffs threats and
the negative economic impact they could have on Canada. Trump said that he
intends to impose 25% tariffs on imports from Canada as soon as February 1st.

19:00 GMT/14:00 ET – FOMC Policy Decision

The Fed is
expected to keep interest rates unchanged at 4.25-4.50%. As a reminder,
the central bank cut interest rates by 25 bps at the last meeting in December
raising growth and inflation projections and lowering the expected rate cuts in
2025 from 100 bps to 50 bps (in line with market’s pricing at that time).

The central
bank will likely stress the need to wait a bit more for the next rate cut to
get more economic data and more clarity on Trump’s policies. As Fed’s Waller recently mentioned, the pace of rate cuts will
depend on inflation progress. He didn’t even rule out completely a March cut which was taken as a dovish surprise by the market.

The recent US
inflation data came in softer than expected and marked the peak in the
inflation hysteria and the repricing in rate cuts expectations. Before the
data, the market was even pricing in the chances on no rate cut in 2025.

That was the
signal that the pricing was getting too much aggressive and in fact we just
needed a couple of benign inflation reports to get it back to price in almost
two rate cuts by the end of the year (which would be in line with the latest
Fed’s projections).

Overall, this
decision is unlikely to influence markets expectations too much as the Fed will likely offer limited forward guidanceas and the data in
Q1 is what really matters. Despite the expected cautiousness, a bit more
positive talk on inflation could see the US Dollar weakening further (as
long as Trump doesn’t spoil the party).

This article was written by Giuseppe Dellamotta at www.forexlive.com.