Canadian Dollar Little Moved vs Euro, Pound & US Dollar as Bank of Canada Pause

June 5, 2025 - Written by David Woodsmith

STORY LINK Canadian Dollar Little Moved vs Euro, Pound & US Dollar as Bank of Canada Pause

The BoC held rates at 2.75%. Inflation concerns stopped them from cutting again, but this may be a brief pause. Unemployment is rising and the trade war is weighing on the economy.

Markets have slowed down this week, with stocks grinding higher above the May highs and the US dollar drifting lower but still in range. Data has been on the quiet side, with major catalysts in sight on Thursday with the ECB meeting, and Friday with the release of the US jobs report.

Wednesday’s session was livened up with the release of ADP Non-Farm Employment Change. This isn’t usually considered that important, but the low reading of 37K was a tow-year low and prompted President Trump to take to social media to shift the blame on Fed Chair Powell,

“ADP NUMBER OUT!!! “Too Late” Powell must now LOWER THE RATE. He is unbelievable!!! Europe has lowered NINE TIMES!”

While he has a point about the ECB being way ahead in its rate cutting cycle, the EU is in a very different situation to the US as it is experiencing notable disinflation. This week’s data showed CPI slowed to just 1.9%. Meanwhile, the US could see its inflation rate rise over the rest of the year and the prospect of a 3-4% CPI rate has kept Powell and the Fed from cutting rates.

BoC Pause at Last

Trump could have also pointed to the Bank of Canada who are also far ahead of the Fed in their cutting cycle. However, after seven consecutive rate cuts, they finally delivered a pause in their Wednesday meeting, maintaining the overnight rate at 2.75%, with the Bank Rate at 3% and the deposit rate at 2.70%. Governor Tiff Macklem explained the rationale, stating, "Given the evolving economic conditions, we judged it appropriate to hold the policy rate steady to assess incoming data." The decision reflects a cautious approach after an aggressive cutting cycle since June 2024, which lowered the rate from 5% to its current level.


The BoC's press release highlighted the complex backdrop, noting, "Global trade uncertainties and domestic inflationary pressures continue to shape our outlook." The data has started to firm up after a worrying dip, but the trade war with the U.S. means that the centra bank will be far from relaxed. Macklem further elaborated, "While recent GDP growth exceeded expectations, driven by export strength, we see signs of softening demand and a labor market under strain, with unemployment at its highest since early 2017."

What really seemed to tip the bank into a pause rather than another cut were concerns over inflation.

“...recent surveys indicate that households continue to expect that tariffs will raise prices and many businesses say they intend to pass on the costs of higher tariffs. The Bank will be watching all these indicators closely to gauge how inflationary pressures are evolving.”

The market’s reaction to the meeting was subdued. USDCAD was lower by around –0.2%, but this can be attributed to a weak dollar. EURCAD was higher by +0.2% so the conclusion is that the Canadian Dollar was little moved across G7 currencies. The market had favoured a pause, but until last week were leaning towards another cut. This may now come in July as the BoC will still have a cutting bias given the backdrop – unemployment could rise to a worrying 7% when the jobs report is released later this week.

ING expect a cut in July as trade war concerns linger and the doubling of steel/aluminium tariffs take a toll.

“The worry is that the latest de-escalation will only lead to a renewed escalation of trade tension that tips Canada’s economy into recession. As such we predict another 25bp cut in July; the market is currently pricing 55-45 in favour of such a move.”

While the Canadian Dollar is resilient this week, the long-term outlook looks troubling.

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TAGS: Canadian Dollar Forecasts