Markets React to Fed Decision, Trump’s Policy Shifts & BoC Rate Cut

Today's expected range for the Canadian Dollar against the major currencies:

US Dollar        1.4320-1.4540

Euro                 1.4930-1.5150

Sterling            1.7830-1.8060

WTI Oil (opening level) $72.73

The CAD is opening at 1.4412 ( 0.6939 )

Headlines

·    The Trump administration said yesterday that it is offering some 2 million federal workers the option to accept a buyout in a “deferred resignation” program if they quit their jobs by February 6. This comes in the wake of a demand that all federal workers return to a five-days-a-week in-office work schedule. The administration expects some 10% of the workers might accept the proposal.

·    The US Federal Reserve kept the policy rate unchanged at the 4.25-4.50% range as expected after its FOMC meeting yesterday and indicated it was in no rush to make any further rate cuts. Fed Chair Powell indicated in the press conference that the rate would be held unchanged until the FOMC has a chance to assess the impact on inflation of Trump’s policies on tariffs, deportation of illegal immigrants and deregulation and tax cuts. Powell said that Trump administration policies are ”not for us to criticize, or to praise.” Rate cut odds dropped very slightly for coming meetings, with the US 2-year benchmark yield ending the day 2 basis points higher.

·    Trump lashed out at the Fed in a social media post, saying “inflation would never have been a problem” had the Fed “spent less time on DEI, gender ideology, Green energy and fake climate change.” In the FOMC meeting press conference before Trump made his opinion known, Fed Chair Powell said that he would not comment on anything that the president has said on Fed policy when questioned about previous Trump comments suggesting the Fed should cut the policy rate.

·    The Bank of Canada sliced another 25 basis points from its policy rate after a string of 50 basis point cuts, taking the rate to 3.00% with markets divided on whether the bank will continue to cut at the next meeting in March or pause before cutting in April or June. BoC Governor Tiff Macklem said he was more concerned about business investment as the US is threatening tariffs more than impacts from the lower yields relative to the US when observing the very weak Canadian dollar.

Key Points

·    Equities: Fed holds rates; Nvidia, Microsoft down; ASML, Schneider up; Apple earnings in focus

·    Volatility: VIX stable; elevated expected moves; PCE inflation report key

·    Digital Assets: Bitcoin rises; Tesla marks up BTC; Trump’s policies keep crypto on edge

·    Currencies: USD largely flat post-FOMC, JPY firms

·    Commodities: Coffee hits fresh record highs, Gold and crude steady

·    Fixed Income: US yields nearly unchanged after FOMC, European yields rise