U.S. CPI Keeps June Cut Alive, BoC Eases as Expected

U.S. Inflation Slows More Than Expected

The U.S. Consumer Price Index (CPI) report released yesterday showed annual inflation rising by 2.8% in February, down from 3.0% in January. Meanwhile, monthly CPI increased by 0.2%, aligning with market expectations.

The Core CPI, which excludes food and energy, rose 3.1% year-over-year, cooling from 3.3% in January.

(US Consumer Price Index, Source: Trading Economics)

US Core Consumer Price Index; Source: Trading Economics)

Market Implications: Odds of a June Cut Increase

Both U.S. inflation indicators suggest that inflation in February slowed more than expected. The modest rise in prices gives the Federal Reserve more flexibility in adjusting monetary policy if needed, keeping market expectations for a Fed rate cut by mid-2025 alive.

According to the CME FedWatch Tool, the market now sees a 58.5% probability of a rate cut in June 2025, up from 30.8% just a month ago.

Despite this, the U.S. Dollar Index remains near 103.50, as markets likely shift focus to next week’s FOMC meeting for further guidance. Meanwhile, despite initial optimism over rate cuts, major U.S. stock indices, including the Dow Jones Industrial Average, saw declines by market close, reflecting ongoing investor caution.

BoC Delivers Seventh Consecutive Rate Cut

The Bank of Canada (BoC) reduced its key interest rate by 25 basis points to 2.75%, as widely expected. This marks the seventh consecutive rate cut, aimed at counteracting economic uncertainties stemming from ongoing trade tensions, particularly with the United States.

In its policy statement, the BoC expressed concerns over escalating trade tensions, calling them a “new crisis” that could hinder economic growth and increase inflationary pressures.

The central bank maintained a cautious stance on future rate adjustments, emphasizing the need to manage inflation expectations amid trade uncertainties. The BoC expects March inflation to rise to 2.5%, up from 1.9% in January. While the statement provided no clear signal of further rate cuts, policymakers indicated that the easing cycle may pause if February and March inflation data come in higher than expected.

Following the announcement, USDCAD traded closely at 1.4400.

(USDCAD, 1-H Chart; Source: Trading View)

According to TMX Montreal Exchange 3-month CDOR data, the market currently sees a 45% chance of another rate cut in April, though this probability could shift as inflation figures for February and March are released.

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