Central Banks Set to Meet Amid Global Uncertainty
Next week promises a pivotal period for central bank policy as the Federal Reserve, Bank of Canada (BoC), and European Central Bank (ECB) hold key meetings, all in the shadow of looming tariff threats. While the Fed is expected to take a pause in rate cuts, both the ECB and BoC are likely to reduce rates further as the global economic landscape continues to shift.
Fed Pauses as Trump’s Tariff Threats Resurface
The spotlight is on the Federal Reserve, which is expected to hold off on cutting rates amid a resilient US economy and persistent inflationary pressures. Although the new administration under President Trump may introduce tax cuts and tariffs, these policies haven’t yet significantly impacted the Fed’s outlook. Despite recent comments from Governor Christopher Waller suggesting potential rate cuts later this year, any shift in tone could hinge on the evolving trade dynamics with China.
While the Fed’s decision to hold rates steady may seem neutral, other economic reports such as the US GDP and PCE inflation data will be pivotal. Strong growth or unexpected inflation could prompt a rethink of the Fed’s near-term strategy. In particular, Thursday’s GDP data and Friday’s inflation numbers could influence future Fed decisions and have an impact on the dollar.
BoC and ECB Expected to Continue Easing
The BoC’s rate-setting meeting on Wednesday will be closely watched. Following a steady rate-cutting campaign, further easing is expected as the Canadian economy continues to face challenges. The BoC’s dovish stance could face headwinds from potential political uncertainty and Trump’s tariff threats, which could limit any impact on the Canadian dollar.
Meanwhile, the ECB is poised for another small rate cut, maintaining its gradual approach despite growing concerns about economic growth and geopolitical risks in Europe. The euro might come under pressure if President Lagarde signals more aggressive easing, particularly if new developments arise on the tariff front.
Additional Data to Watch
Other key data points include China’s manufacturing PMI on Monday and Australia’s CPI report on Wednesday. The latter could have significant implications for the Australian dollar, especially if it shows signs of softening, which could fuel expectations of an interest rate cut by the Reserve Bank of Australia.
