Weaker-than-expected US inflation data reduces bets on further Federal Reserve tightening, lifting the Canadian Dollar against the USD.
The USD/CAD pair dropped to 1.4190 in early European trading Friday as the US Dollar weakened. The decline followed softer US Personal Consumption Expenditures (PCE) Price Index data, easing expectations for additional Federal Reserve rate hikes.
Prior to the release, markets had priced in a higher probability of further tightening, with the USD/CAD pair trading near multi-week highs. The PCE data, a key inflation gauge for the Fed, suggested cooling price pressures, contrasting with earlier concerns over persistent inflation.
The move reflects shifting sentiment toward a less aggressive Fed stance, supporting risk-sensitive currencies like the CAD.