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The Bank of Canada (BoC) held its policy rate at 2.25%, in line with market expectations.

The opening statement highlighted that while tariffs and trade uncertainty continue to weigh on business investment, the economy has proven to be relatively resilient. However, it noted that measures of hiring intentions remain "subdued" despite the recent improvements in the labour market.

The Bank expects that inflation will continue to moderate in the coming months. There was emphasis that there could be some "choppiness" in inflation in the months ahead. Nonetheless this is expected to be temporary and there was again emphasis that underlying inflation remains “around 2.5%”.

Importantly the release maintained the statement that "[i]f inflation and economic activity evolve broadly in line with the October projection, Governing Council sees the current policy rate at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment".

Key Implications

A sequence of strong employment reports lead to markets repricing the risk of a rate hike from the BoC next year. Dismissing the economy's resilience would be a mistake, however, the outlook remains challenging and the risks from trade uncertainty remain high.

The hold here was widely expected, and we maintain the view that the balance of risks to the outlook will have the Bank on hold in the coming months. Of course, uncertainty remains sky-high and with discussions about the renewal of the CUSMA trade agreement set to pick up (along with some delayed data), we expect the Bank of Canada to maintain its data dependent approach.

Markets

The European morning session contained little more than the long-drawn waiting exercise that often precedes a Fed policy decision. EMU yields resumed their recent journey ‘north’ that accelerated on comments from ECB board member Schnabel on Monday. She ‘approved’ market pricing taking a rate hike as the ‘base case’ for the next ECB rate move. Market participants who still weren’t convinced as Schnabel is considered to be on the hawkish side of the ECB spectrum, got some more ‘neutral’ confirmation today. ECB Simkus, usually on the dovish side, also agrees that interest rates don’t have to be lowered any further as both inflation and growth recently printed stronger than expected and as risks on both have become fairly balanced. ECB Chair Lagarde in an interview at an FT event, agreed that the EMU economy had been more resilient than expected in the wake of the US tariff announcement in spring. The ECB already upgraded 2025 growth in September (from 0.9% to 1.2%) and might repeat that at next week’s staff projections. ECB’s Kazaks repeated that the bank is in a good place with inflation near 2% but warned that sticky core and services inflation ‘requires continued monitoring’. The ECB tomorrow enters its silent period ahead of the December 18 decision tomorrow. EMU (swap) yields currently trade off the intraday highs, but still add up to 2.5+ bps (2 & 5-y). The 2-y swap in this respect returned to the levels reached after German fiscal announcement early March. Longer maturities, affected by rising (fiscal) premia, even returned to the mid-2024 peak levels. As was often the case of late, the impact of moves in interest rate markets only had little impact on equities (Eurostoxx 50 -0.25%) or FX (EUR/USD little changed at 1.1635).

Awaiting this evening’s Fed decision, US yields understandably are changing less than 1 bp across the curve. The Fed is expected to proceed with another precautionary 25 bps rate cut (to 3.5%-3.75%) despite a highly divided MPC. Markets will keep a close eye at the new Summery of Economic Projections (dots) and any guidance from Fed Chair Powell. However, news from those sources will probably be highly conditional. Governors since the September forecast had little hard evidence on the labour market and even less on inflation to make substantial changes. One can expect the Fed chair to shift to an outright data-dependent narrative as the policy rate is coming closer to neutral. This puts the focus on data updates between now and Christmas (payrolls, CPI and Q3 GDP). With yields having rebounded/priced out more aggressive easing, there might again be room for some correction in case of softer data. Question is whether today’s FOMC meeting will already allow for such an interpretation/reaction.

News & Views

Norwegian inflation unexpectedly rose by 0.1% m/m in November, defying estimates for a slight 0.1% monthly drop. The annual print came in at 3% vs 2.7% expected but nevertheless a slight easing from October’s downwardly revised 3.1%. Norway’s central bank had 2.5% written down in the tables. The underlying measure on the other hand dropped a little more than analysts had penciled in, -0.3% m/m, lowering the yearly reading to 3% from 3.4%. Today’s numbers together with tomorrow’s regional business sentiment survey by the Norges Bank are the final input to next week’s monetary policy decision. With inflation still well above the 2% target, the central bank in all likelihood will keep rates steady at 4% and stick to the extremely gradual easing pace they’ve been communicating for some time now (one cut per year over the next three years). The Norwegian crown is slightly lower on the day with EUR/Nok moving towards 11.81.

The IMF in its annual review of China urged the country to make “the brave choice” in switching from an economy that’s nearing the growth limits via exports to a consumption-led model. The IMF called for additional fiscal stimulus and greater monetary easing while simultaneously take steps to rein in local debt and tackle a year’s long property crisis. It estimates the required spending for the latter to be around 5% of GDP. The IMF nevertheless upgraded its growth forecasts for China to 5% from 4.8% for this year and to 4.5% from 4.2% for 2026. Around a fifth of this year’s estimated 5% growth came on the account of net-exports, the IMF said, with a real depreciation of the Chinese currency having played a role. The IMF hasn’t formally called for China to pursue a stronger CNY, but did state that bolder stimulus could boost consumption and lift inflation (and the real CNY exchange rate) in the process.

Canadian Dollar eased modestly in early US trading after the BoC left its policy rate unchanged at 2.25%, as markets had fully expected. While the decision itself carried no surprises, the statement struck a slightly cautious tone on growth, prompting a mild pullback in CAD after its recent period of outperformance.

Policymakers reiterated that the bank has entered a long pause, but also highlighted that uncertainty surrounding the growth outlook remains elevated. Q4 GDP is expected to be weak, and the anticipated recovery in 2026 could still be derailed by trade volatility, structural headwinds and the ongoing adjustments to supply chains.

Even so, the BoC made clear it is not preparing to adjust interest rates again soon. With inflation expected to hover near target and domestic slack offsetting cost pressures tied to trade reconfiguration, policymakers see little justification for further moves unless a drastic shock emerges. That message keeps the easing cycle firmly in the rear-view mirror.

Attention now shifts to the FOMC decision later today. A 25bps cut is fully priced and universally expected, making the headline move largely irrelevant for markets. Instead, traders will focus on how the Fed shapes expectations for 2026 through the dot plot, the vote split, the statement, and Chair Jerome Powell’s press conference. With so many variables, volatility is almost guaranteed.

Away from North American monetary policy, the IMF raised its forecast for China’s 2026 economic growth by 0.3 percentage points to 4.5%, citing stronger domestic stimulus and lower-than-expected tariff effects. However, the Fund also made clear that China must accelerate its transition toward consumption-led growth.

IMF Managing Director Kristalina Georgieva argued that China is now too large an economy to rely on export-driven expansion. “Continuing to depend on export-like growth risks furthering global trade tensions,” she said, adding that accelerating the shift toward domestic demand would be “beneficial for China” and for the global economy.

Her comments coincided with a stark warning from the European Union Chamber of Commerce in China. The group said European companies are accelerating diversification away from Chinese supply chains as Beijing’s self-reliance agenda and export controls deepen uncertainty. The EU trade imbalance with China has widened to 1:4 in container terms, from 1:2.7 in 2019, exacerbated by persistent deflation and Yuan depreciation.

EU Chamber President Jens Eskelund highlighted that China has now recorded 37 consecutive months of factory-gate deflation. “When we have this gap between deflation in China and inflation in Europe, that adds to the imbalance in currency,” he said.

For the week so far, Swiss Franc is currently the best performer, followed by Kiwi, and then Dollar. Yen is still the weakest, followed by Loonie, and then Aussie. EUro and Sterling are positioning in the middle.

In Europe, at the time of writing, FTSE is up 0.25%. DAX is down -0.52%. CAC is down -0.40%. 10-year yield is up 0.022 at 4.526. Germany 10-year yield is up 0.011 at 2.868. Earlier in Asia, Nikkei fell -0.10%. Hong Kong HSI rose 0.42%. China Shanghai SSE fell -0.23%. Singapore Strait Times fell -0.03%. Japan 10-year JGB yield fell -0.001 to 1.963.

BoC holds steady, points to weak Q4 GDP and balanced inflation outlook

The BoC kept the overnight rate unchanged at 2.25% today, in line with expectations. The most notable element of the statement was the Governing Council’s assessment that, if inflation and economic activity evolve broadly as projected in October, the current policy rate is “about the right level.” This marks a clear signal that the easing cycle has effectively ended and that the bank has entered a long period of steady policy barring major surprises.

The statement acknowledged mixed growth dynamics heading into year-end. The Bank expects final domestic demand to expand in Q4, but weakness in net exports will leave overall GDP “likely weak.” Growth is projected to firm in 2026, though policymakers warned that uncertainty remains elevated and that swings in trade flows could continue to create quarter-to-quarter volatility.

Employment has posted solid gains over the past three months and the unemployment rate declined to 6.5% in November. However, job markets in trade-sensitive sectors “remain weak,” and economy-wide hiring intentions are still "subdued"—reflecting the broader drag from structural trade reconfiguration.

Despite these pressures, BoC expects the ongoing economic slack to counterbalance cost increases associated with shifting trade patterns. As a result, CPI inflation is still anticipated to stay close to the 2% target, providing the BoC with scope to maintain a steady hand for the foreseeable future.

China CPI hits 21-month high, but weak demand keeps PPI in deep negative

China’s November inflation data paint a picture of an economy showing modest signs of surface-level improvement while still grappling with entrenched deflationary pressures.

CPI accelerated from 0.2% yoy to 0.7% yoy, matching expectations and marking a 21-month high. The gain was driven primarily by food prices, which rose 0.2% yoy after a -2.9% yoy drop in October. Core inflation held steady at 1.2% yoy, while energy prices slid -3.4% yoy—an even deeper decline than the prior month.

On a monthly basis, CPI fell -0.1% mom after October’s 0.2% mom increase, contrary to expectations for another rise.

PPI slipped from –2.1% yoy to –2.2% yoy, extending China’s factory-gate deflation streak into a fourth year. Manufacturers continue to cut prices aggressively to clear excess supply, a sign that domestic and external demand remain too weak to absorb output.

Coal mining prices tumbled -11.8% yoy, while the oil and gas extraction sector saw a -10.3% yoy decline—deep drops that suggest little improvement in industrial profitability.

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.3826; (P) 1.3844; (R1) 1.3863; More...

USD/CAD recovers mildly in early US session but outlook is unchanged. Intraday bias stays neutral and more consolidations could be seen. Upside of recovery should be limited below 1.3936 support turned resistance. On the downside, break of 1.3798 will resume the fall from 1.4139 to 61.8% retracement of 1.3538 to 1.4139 at 1.3768. Firm break there will argue that whole decline form 1.4791 might be ready to resume through 1.3538 low.

In the bigger picture, current development suggests that price actions from 1.4791 is developing into a deeper, larger scale correction. In the less bearish case, it's just correcting the rise from 1.2005 (2021 low). But even so, break of 1.3538 will pave the way to 61.8% projection of 1.4791 to 1.3538 from 1.4139 at 1.3365. This will remain the favored case as long as 1.4139 resistance holds, in case of rebound.

Daily Pivots: (S1) 1.3826; (P) 1.3844; (R1) 1.3863; More...

USD/CAD recovers mildly in early US session but outlook is unchanged. Intraday bias stays neutral and more consolidations could be seen. Upside of recovery should be limited below 1.3936 support turned resistance. On the downside, break of 1.3798 will resume the fall from 1.4139 to 61.8% retracement of 1.3538 to 1.4139 at 1.3768. Firm break there will argue that whole decline form 1.4791 might be ready to resume through 1.3538 low.

In the bigger picture, current development suggests that price actions from 1.4791 is developing into a deeper, larger scale correction. In the less bearish case, it's just correcting the rise from 1.2005 (2021 low). But even so, break of 1.3538 will pave the way to 61.8% projection of 1.4791 to 1.3538 from 1.4139 at 1.3365. This will remain the favored case as long as 1.4139 resistance holds, in case of rebound.

The BoC kept the overnight rate unchanged at 2.25% today, in line with expectations. The most notable element of the statement was the Governing Council’s assessment that, if inflation and economic activity evolve broadly as projected in October, the current policy rate is “about the right level.” This marks a clear signal that the easing cycle has effectively ended and that the bank has entered a long period of steady policy barring major surprises.

The statement acknowledged mixed growth dynamics heading into year-end. The Bank expects final domestic demand to expand in Q4, but weakness in net exports will leave overall GDP “likely weak.” Growth is projected to firm in 2026, though policymakers warned that uncertainty remains elevated and that swings in trade flows could continue to create quarter-to-quarter volatility.

Employment has posted solid gains over the past three months and the unemployment rate declined to 6.5% in November. However, job markets in trade-sensitive sectors “remain weak,” and economy-wide hiring intentions are still "subdued"—reflecting the broader drag from structural trade reconfiguration.

Despite these pressures, BoC expects the ongoing economic slack to counterbalance cost increases associated with shifting trade patterns. As a result, CPI inflation is still anticipated to stay close to the 2% target, providing the BoC with scope to maintain a steady hand for the foreseeable future.

Full BoC statement here.

The Bank of Canada today held its target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%.

Major economies around the world continue to show resilience to US trade protectionism, but uncertainty is still high. In the United States, economic growth is being supported by strong consumption and a surge in AI investment. The US government shutdown caused volatility in quarterly growth and delayed the release of some key economic data. Tariffs are causing some upward pressure on US inflation. In the euro area, economic growth has been stronger than expected, with the services sector showing particular resilience. In China, soft domestic demand, including more weakness in the housing market, is weighing on growth. Global financial conditions, oil prices, and the Canadian dollar are all roughly unchanged since the Bank’s October Monetary Policy Report (MPR).

Canada’s economy grew by a surprisingly strong 2.6% in the third quarter, even as final domestic demand was flat. The increase in GDP largely reflected volatility in trade. The Bank expects final domestic demand will grow in the fourth quarter, but with an anticipated decline in net exports, GDP will likely be weak. Growth is forecast to pick up in 2026, although uncertainty remains high and large swings in trade may continue to cause quarterly volatility.

Canada’s labour market is showing some signs of improvement. Employment has shown solid gains in the past three months and the unemployment rate declined to 6.5% in November. Nevertheless, job markets in trade-sensitive sectors remain weak and economy-wide hiring intentions continue to be subdued.

CPI inflation slowed to 2.2% in October, as gasoline prices fell and food prices rose more slowly. CPI inflation has been close to the 2% target for more than a year, while measures of core inflation remain in the range of 2½% to 3%. The Bank assesses that underlying inflation is still around 2½%. In the near term, CPI inflation is likely to be higher due to the effects of last year’s GST/HST holiday on the prices of some goods and services. Looking through this choppiness, the Bank expects ongoing economic slack to roughly offset cost pressures associated with the reconfiguration of trade, keeping CPI inflation close to the 2% target.

If inflation and economic activity evolve broadly in line with the October projection, Governing Council sees the current policy rate at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment. Uncertainty remains elevated. If the outlook changes, we are prepared to respond. The Bank is focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval.

Information note

The next scheduled date for announcing the overnight rate target is January 28, 2026. The Bank’s next MPR will be released at the same time.

Daily Pivots: (S1) 1.1608; (P) 1.1633; (R1) 1.1650; More….

Intraday bias in EUR/USD remains neutral and more consolidations could still be seen below 1.1681. Further rally is in favor with 1.1590 minor support intact. Corrective fall from 1.1917 could have completed at 1.1467. Above 1.1681 will target 1.1727 resistance first. Firm break there will solidify this case and bring retest of 1.1917 high. However, break of 1.1590 will revive near term bearishness, and bring retest of 1.1467 low.

In the bigger picture, as long as 55 W EMA (now at 1.1346) holds, up trend from 0.9534 (2022 low) is still in favor to continue. Decisive break of 1.2 key psychological level will carry larger bullish implication. However, sustained trading below 55 W EMA will argue that rise from 0.9534 has completed as a three wave corrective bounce, and keep long term outlook bearish.

Daily Pivots: (S1) 1.3271; (P) 1.3314; (R1) 1.3339; More...

Intraday bias in GBP/USD remains neutral as consolidations continue below 1.3384. With 1.3178 support intact, further rally is expected. As noted before, fall from 1.3787 should have completed as a three-wave correction to 1.3008. On the upside, above 1.3384 will target 1.3470 resistance. Decisive break there will bring retest of 1.3787 high.

In the bigger picture, current development suggests that fall from 1.3787 is merely a corrective move, and larger rise from 1.0351 (2022 low) is still in progress. Firm break of 1.3787 will target 1.4248 (2021 high) key structural resistance. This will remain the favored case as long as target 38.2% retracement of 1.0351 to 1.3787 at 1.2474 holds, in case of another fall.

Daily Pivots: (S1) 0.8047; (P) 0.8065; (R1) 0.8080; More…

Intraday bias in USD/CHF remains neutral for the moment. Overall outlook is unchanged that price actions from 0.7828 are developing into a corrective pattern. Risk is mildly on the upside as long as 0.7990 support holds. Firm break of 0.8123 will target 138.2% projection of 0.7828 to 0.8075 from 0.7877 at 0.7812. However, break of 0.7990 support will turn bias back to the downside for 0.7877 support.

In the bigger picture, outlook will stay bearish as long as 0.8332 support turned resistance holds (2023 low). Long term down trend from 1.0342 (2017 high) is still in progress. Next target is 100% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.7382.

Daily Pivots: (S1) 156.11; (P) 156.53; (R1) 157.33; More...

Intraday bias in USD/JPY remains on the upside as rise from 154.33 is in progress for retesting 157.88. Decisive break there will will target 158.85 structural resistance. Firm break there will be a strong bullish sign, and should target a retest on 161.94 high next. On the downside, below 155.73 minor support will turn bias neutral first. But risk will stays mildly on the upside as long as 154.33 support holds, in case of retreat.

In the bigger picture, corrective pattern from 161.94 (2024 high) could have completed with three waves at 139.87. Larger up trend from 102.58 (2021 low) could be ready to resume through 161.94 high. Decisive break of 158.85 structural resistance will solidify this bullish case and target 161.94 for confirmation. On the downside, break of 150.90 resistance turned support will dampen this bullish view and extend the corrective range pattern with another falling leg.