The US Dollar (USD) experienced a modest pullback on Thursday, trading around 1.3655 against the Canadian Dollar (CAD), down 0.21% on the day, following a period of stabilization. This movement comes amid a retreat in oil prices, with West Texas Intermediate (WTI) trading at approximately $103 per barrel after several days of gains. Despite the decline in oil, the CAD showed resilience, supported by ongoing geopolitical tensions in the Middle East and potential supply disruptions that bolster Canada's energy sector outlook [1].
On the monetary policy front, the Bank of Canada (BoC) maintained its policy rate at 2.25%, adopting a wait-and-see stance. Governor Tiff Macklem emphasized a data-dependent approach, with no preset path for future moves. The BoC signaled that trade shocks from the US could justify rate cuts, while persistent energy-driven inflation might require tightening. Meanwhile, the Federal Reserve (Fed) kept rates within the 3.5%-3.75% range, with a divided vote reflecting rare internal disagreement. Fed Chair Jerome Powell reiterated that inflation remains elevated, partly due to higher energy prices, reinforcing a broadly hawkish stance [1].
The US Dollar Index (DXY) pulled back from the 99.00 line as US Treasury yields gave away gains following Wednesday’s rally. The Fed's decision sent US yields and the USD higher on Wednesday, with three policymakers opposing the “easing bias” language. Chair Powell announced he will continue as Governor, effectively replacing Stephen Miran, who voted for a rate cut [2]. This USD retreat contributed to gold (XAU/USD) rebounding above $4,600 after a three-day sell-off, returning to its four-week trading range. Technical indicators suggest improving momentum for gold, with resistance levels at $4,640 and $4,665, and support at $4,500 and $4,350 [2].
In Europe, the EUR/USD pair corrected lower, slipping below 1.1700 ahead of the European Central Bank (ECB) policy meeting. Rising oil prices are increasing stagflation risks for Europe, but narrowing yield spreads versus the US and expectations for multiple ECB rate hikes have helped the euro hold up better than historical oil-price sensitivities would suggest. Brent oil prices have increased by over 70% since the conflict started, yet EUR/USD has only declined by just over 1%, highlighting the disappointing performance of the USD. MUFG forecasts a 50bps ECB rate hike, with policy guidance expected to remain unchanged and a hike likely at the next meeting if Middle East tensions persist [3].
According to [1], the USD was the strongest against the CAD among major currencies, but [2] notes a general easing of the USD, contributing to gold's recovery. The sources agree on the USD's retreat and its impact on other assets, though [1] emphasizes USD strength against CAD, while [2] and [3] highlight broader USD weakness and its effects on gold and EUR/USD.
CONCLUSION
The US Dollar's retreat following the Fed's policy split and easing Treasury yields has led to notable movements across major assets, including a rebound in gold and corrections in EUR/USD. Oil price volatility and central bank policy expectations continue to drive market uncertainty, with the ECB poised for potential rate hikes and the BoC maintaining a cautious stance. Overall, the event has had a high market impact, with investors closely watching central bank actions and geopolitical developments.