Traders trim bets on a July Fed rate increase after June CPI data undershoots expectations, lifting the Canadian dollar ahead of the BoC decision.
The USD/CAD pair retreated to 1.4050 in early European trading Wednesday as softer US inflation data reduced expectations for a Federal Reserve rate hike this month. June’s Consumer Price Index rose 3.5% year-over-year, below the 3.8% consensus, while core CPI climbed 2.6%, undercutting forecasts of 2.8%.
Markets now assign a 16.6% probability to a quarter-point Fed hike on July 28-29, down from 35% before the CPI release. Odds for a September increase fell to 60% from over 90%. The Bank of Canada is expected to hold its benchmark rate at 2.25% later Wednesday, extending a six-meeting pause.
The US Producer Price Index and BoC decision remain key events for the session, with traders monitoring inflation trends and central bank guidance.