USD Rises as Fed Stokes Stagflation Fears, CAD Steady Near 1.37

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

US Dollar        1.3590-1.3830

Euro                 1.5620-1.5850

Sterling            1.8300-1.8550

WTI Oil (opening level) $74.31

The CAD/USD is opening at 1.3703 ( 0.7297 )

The USD firmed yesterday after the FOMC meeting, as an initial attempt to read the meeting as dovish was quickly unwound as the Fed economic projections are clearly in the direction of stagflation, which kept US yields elevated. CAD hovered around the 1.3700 level overnight. EURUSD edged lower to trade nearly as low as 1.1450, while USDJPY was steadier around 145.00 as the JPY was more broadly resilient. 

Headlines

·    Trump says that he “may or may not” strike Iran as key US military assets, including the US Nimitz carrier group changed course from the South China sea to head toward the Middle East.

·    The FOMC meeting delivered a mixed message, with some very modest adjustments to the policy statement suggesting very slightly less concern about the economic outlook than the previous statement (which was from May 7 and came only a few weeks after the Liberation Day swoon in markets and general sentiment. The new staff economic projections showed growth revisions revised lower for this year and next, with inflation revised higher for all of 2025-2027 and the Unemployment rate likewise revised slightly higher for 2025-2027 (to 4.5% for this year and next versus 4.4% and 4.3%, respectively). This suggests uncomfortably stagflation outlook that Fed policy will have a tough time addressing, hence short term drama in rates markets, as the US treasuries initially rallied, only to end the day mostly unchanged. The Fed forecasts for the appropriate policy rate suggested that two camps are forming among Fed members, those that forecast the rate should remain unchanged through the end of this year and those that believe at least two cuts will be appropriate. In the press conference, Fed Chair Powell stressed uncertainty and the need for patience, which kept anticipation of a July rate cut low.

·    US housing starts fell 9.8% in May 2025 to 1.256 million units, below expectations of 1.36 million, marking the weakest level since May 2020. High mortgage rates and excess supply of homes dampened builder sentiment and construction activity.

·    US weekly initial jobless claims dropped by 5,000 to 245,000 for the week ending June 14th, aligning with expectations and down slight from the 250k (revised up from 248k) of the prior week. The four week average hit 245k, the highest since August of 2023. Continuing claims were at 1,945,000, down 6k from the prior week’s three-year high, signalling a softening labour market amid economic uncertainty. 

Key Points

·    Equities: Fed cautious, tech steady, Europe/Asia weak, geopolitics dominate

·    Volatility: VIX dips pre-holiday, triple witching Friday, short-term risks

·    Digital assets: Bitcoin/Ethereum steady, IBIT/ETHA down, Coinbase jumps

·    Fixed Income: Mixed message from FOMC meeting sees mixed treasuries rally, then retreat

·    Currencies: USD and JPY firm post-FOMC meeting.

·    Commodities: Wheat and platinum jumps adding to overall strong commodity performance